United States Ex Rel. Oliver v. Philip Morris USA Inc.

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 15, 2016 Decided June 21, 2016
No. 15-7049
UNITED STATES, EX REL. ANTHONY OLIVER,
AND
ANTHONY OLIVER,
APPELLANT
v.
PHILIP MORRIS USA INC., A VIRGINIA CORPORATION,
FORMERLY KNOWN AS PHILIP MORRIS INCORPORATED,
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 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.
2
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: 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
1
All citations are to the 2006 version of the statute unless otherwise
noted.
2
The facts are taken from the second amended complaint
(“Complaint” or “Compl.”) and Oliver’s supporting declaration.
For purposes of a motion to dismiss, the facts alleged in the
Complaint are taken to be true, and all inferences are drawn in
Oliver’s favor. See U.S. ex rel. Davis v. District of Columbia, 679
F.3d 832, 834-35 (D.C. Cir. 2012). We may also consider Oliver’s
3
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:
declaration to determine whether we have jurisdiction. See Coal.
for Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C.
Cir. 2003).
3
This provision was amended by the Patient Protection and
Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (2010).
4
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
4
This provision is also referred to as the “public disclosure bar.”
5
The current version of the statute defines an original source as “an
individual 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).
5
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.
6
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+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 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
7
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 pricing disparities and Philip Morris’s
false certifications of compliance with the Most Favored
Customer provisions, were in the public domain.” Id.
As a threshold matter, though not invoking the law of the
case doctrine, Oliver appears to argue that we already held
that the transactions were not publicly disclosed. See
Appellant Br. at 29. This is too broad a reading of Oliver I.
In our earlier opinion, we concluded that “[t]he Iceland
Memo, standing alone, does not communicate that there was
anything legally impermissible about the prices Philip Morris
was charging the Exchanges.” Oliver I, 763 F.3d at 43
(emphasis added). In evaluating only the Y term, we found
that neither the MFC provisions nor Philip Morris’s
fraudulent certifications that it complied with them was
publicly disclosed. Id. at 41-43. We explicitly did not resolve
the potential disclosure of the pricing disparities in the memo.
Id. at 41. Oliver I thus never reached the X term and only
reflects that the Iceland Memo does not provide the Y term.
On remand, the District Court concluded that the Iceland
Memo provided the X term and was publicly disclosed, and
that Philip Morris provided evidence that the Y term was also
publicly disclosed. Oliver, 101 F. Supp. 3d at 123-27.
Accordingly, we must resolve whether the District Court was
correct in holding that these X and Y terms constitute publicly
disclosed transactions.
1.
We turn first to whether the Iceland Memo publicly
discloses the price differential alleged in Oliver’s Complaint.
8
Oliver argues that the Iceland Memo does not publicly
disclose that Philip Morris was not providing cigarettes at the
best price to the Exchanges. Oliver concedes that “the
Iceland Memo does reflect a differential between the prices
charged to the military and to private parties.” Appellant Br.
at 34. However, he argues that the price differential revealed
in the memo is not the same as what he alleges in his
complaint because the Iceland Memo involves different time
periods, MFC provisions, and corporate sales.
“We have explained that a suit is ‘based upon’ publicly
disclosed ‘allegations or transactions’ when the allegations in
the complaint are ‘substantially similar’ to those in the public
domain.” U.S. ex rel. Davis v. District of Columbia, 679 F.3d
832, 836 (D.C. Cir. 2012) (quoting U.S. ex rel. Findley v.
FPC-Boron Emps.’ Club, 105 F.3d 675, 682 (D.C. Cir. 1997),
abrogated on other grounds by Rockwell Int’l Corp. v. United
States, 549 U.S. 456 (2007)); see also Findley, 105 F.3d at
690 (“We have already decided that the public disclosure bar
is triggered when a relator files an action that is substantially
similar to ‘allegations or transactions’ already in the public
domain.”). “This rule prevents suits by those other than an
‘original source’ when the government already has enough
information ‘to investigate the case and to make a decision
whether to prosecute’ or where the information ‘could at least
have alerted law-enforcement authorities to the likelihood of
wrongdoing.’” Davis, 679 F.3d at 836 (quoting Springfield
Terminal, 14 F.3d at 654). Merely providing “more specific
details” about what happened does not negate substantial
similarity. Id. Additionally, “a relator’s ability to reveal
specific instances of fraud where the general practice has
already been publicly disclosed is insufficient to prevent
operation of the jurisdictional bar.” U.S. ex rel. Settlemire v.
District of Columbia, 198 F.3d 913, 919 (D.C. Cir. 1999)
(citing Findley, 105 F.3d at 687-88).
9
The price difference alleged in the Complaint is
substantially similar to the price difference the Iceland Memo
describes. According to the Complaint, Philip Morris sold
identical cigarettes to PM DFI and PMI “at prices lower than
the prices such cigarettes were sold to” the Exchanges.
Compl. ¶ 25, J.A. 21. The Complaint further alleges that
over the period covered by this . . . Complaint,
one or more of defendant’s affiliates purchased
defendant’s cigarette products from defendant
(at a price well below the price charged to
NEXCOM) and re-sold such cigarettes to the
civilian duty-free market on American Samoa.
Id. ¶ 26, J.A. 21. Also according to the Complaint, “[s]imilar
price differentials have existed throughout th[is] period . . .
for sales by defendant’s affiliates of defendant’s cigarettes to
the duty-free and foreign markets comparably situated to
AAFES overseas military exchanges.” Id. ¶ 27, J.A. 21.
The Iceland Memo, dated December 28, 1999, outlines
Philip Morris’s general practice of selling Philip Morris
products to the military at a price higher than that which
Philip Morris sells cigarettes off its duty-free price list to
other overseas Philip Morris customers. It states that “PMI
Duty-Free list prices are lower than PM USA Military tax-
free prices and we frequently receive inquiries from the
Service Headquarters on why they can’t purchase tax-free
product at these lower prices.” J.A. 74. The memo was
generated as a result of a “letter written by the Director,
Morale, Welfare & Recreation (MWR) Department at the
U.S. Naval station in Keflavik, Iceland to a duty-free
wholesaler in Norfolk, Virginia” because “the MWR facility
. . . tried, unsuccessfully, to have a duty-free wholesaler . . .
10
supply them with Philip Morris products.” J.A. 74. The
memo notes that “PM USA is responsible for U.S. Military
markets worldwide and is the source for product to MWR
facilities” which “are independent operations and not
associated with [the Exchanges].” J.A. 74.6 The memo
attributes the price differential to obligations to comply with
Surgeon General warnings. Although Oliver provides more
specific details about this general practice in his complaint,
such as the $4.00 price differential between affiliate resale in
American Samoa and NEXCOM resale in Guam, these
additional details do not mean the transaction was not already
publicly disclosed. Cf. Settlemire, 198 F.3d at 919.
Oliver’s attempts to distinguish the Iceland Memo are
unpersuasive. Although the Iceland Memo predates the sale
of cigarettes alleged in the complaint, we have found
“disclosures going back as far as forty years prior to the
relator’s lawsuit . . . sufficient to disclose the practices which
formed the basis of the relator’s suit.” Id. Accordingly, the
time difference does not undermine the disclosure of Philip
Morris’s general practice. Furthermore, Oliver’s remaining
objections amount to an argument that the Iceland Memo fails
to establish that the sale of cigarettes breaches the specific
MFC provisions of the Exchanges’ contracts. However,
“[t]here is no requirement . . . that the relevant public
disclosures irrefutably prove a case of fraud. It is sufficient
that the ‘publicly disclosed transaction is sufficient to raise
the inference of fraud.’” Id. (quoting Findley, 105 F.3d at
687-88). Here, the Iceland Memo must simply demonstrate
6
The details of the Iceland MWR facility’s operations and its
relationship with the Exchanges and Philip Morris are not clear
from the record. This ambiguity does not impact our analysis,
however, which relies only on the Iceland Memo’s disclosure that
Philip Morris charged the Exchanges higher prices than PMI
charged other overseas customers. See J.A. 74.
11
knowledge “that Philip Morris was not providing the
Exchanges with the best price for cigarettes.” Oliver I, 763
F.3d at 41. The Iceland Memo establishes that PM USA
routinely sold cigarettes at prices lower than those at which
the military could purchase cigarettes, providing “the
government . . . [with] enough information ‘to investigate the
case and to make a decision whether to prosecute’ or . . .
‘could at least have alerted law-enforcement authorities to the
likelihood of wrongdoing.’” Davis, 679 F.3d at 836 (quoting
Springfield Terminal, 14 F.3d at 654). The Iceland Memo
therefore publicly discloses the price differential, and the
transaction alleged here was based upon this publicly
disclosed information.
2.
Oliver also argues that Philip Morris did not publicly
disclose that it falsely certified compliance with the MFC
provisions. Oliver does not dispute that the contracts
containing the MFC provisions were publicly disclosed.
Instead, he contends that because nothing in the MFC
provisions themselves specifically states that Philip Morris’s
compliance was false, the contracts containing the MFC
provisions do not publicly disclose that Philip Morris falsely
certified compliance.
We agree with the District Court that because the MFC
provisions were incorporated by reference into every contract,
“a hypothetical government investigator aware of the price
discrepancies and the MFC provisions would be ‘alerted . . .
to the likelihood’ that the vendor was falsely certifying
compliance with the relevant provisions.”
Oliver, 101 F. Supp. at 126 (quoting Settlemire, 198 F.3d at
918). Oliver’s allegation of fraud is itself based upon the
MFC provisions’ incorporation by reference into each
12
contract with the Exchanges. The allegation “is not based on
[his] direct knowledge of [Philip Morris’s] scienter or lack
thereof. Rather, it is an inference drawn from the available
facts . . . .” Cause of Action v. Chicago Transit Auth., 815
F.3d 267, 281 (7th Cir. 2016). Because the MFC provisions
are incorporated by reference into the Exchanges’ contracts, a
price differential disadvantageous to the government,
combined with a contract term certifying that Philip Morris
would sell cigarettes at the best possible price, would enable
the government to adequately investigate the case and make a
decision whether to prosecute. See Davis, 679 F.3d at 836;
see also Cause of Action, 815 F.3d at 281 (relator’s
allegations were based upon publicly disclosed information
because, inter alia, “the Government was in an identical
position to infer scienter from the publicly disclosed”
documents). Accordingly, Oliver’s allegation of false
compliance is based upon the publicly disclosed MFC
provisions.
B.
Although we conclude that the transactions that give rise
to an inference of fraud were publicly disclosed, the
jurisdictional bar operates only if the public disclosure occurs
through certain channels specified in the statute. The statute
specifies that public disclosure must occur in, inter alia, “a
criminal civil or administrative hearing, in a congressional,
administrative, or Government Account Office report . . . or
from the news media.” 31 U.S.C. § 3730(e)(4)(A). If the
public disclosure did not occur through a statutorily
enumerated channel, the jurisdictional bar does not operate.
See id. Originally, the District Court concluded that the
Iceland Memo was disclosed through two FCA channels: in a
civil hearing, and in the news media. Oliver, 949 F. Supp. 2d
at 245-47. When Philip Morris introduced the MFC
13
provisions on remand, the District Court also concluded that
the MFC provisions were publicly disclosed through
administrative reports and the news media. Oliver, 101 F.
Supp. 3d at 124-25. After reviewing the record, we conclude
that the Iceland Memo was disclosed in a civil hearing and the
MFC provisions were disclosed in an administrative report.
1.
Oliver first argues that the Iceland Memo was not
disclosed in a civil hearing. In Springfield Terminal, we held
that “discovery material, when filed with the court (and not
subject to protective order), is publicly disclosed in a civil
hearing for purposes of § 3740(e)(4)(A)’s jurisdictional bar.”
14 F.3d at 652. We further explained that “[i]t is clear from
statutory context that the term ‘hearing’ was intended to apply
in a broad context of legal proceedings under
§ 3740(e)(4)(A),” and “that for purposes of § 3740(e)(4)(A),
‘hearing’ is roughly synonymous with ‘proceeding.’” Id. We
limited our interpretation to “discovery material . . . which is
actually made public through filing, as opposed to discovery
material which has not been filed with the court and is only
theoretically available upon the public’s request.” Id. We
read the statute to require actuality because “[i]f [discovery
materials] are not yet in the public eye, no rational purpose is
served—and no ‘parasitism’ deterred—by preventing a qui
tam plaintiff from bringing suit based on their contents.” Id.
at 653.
Oliver argues that Springfield Terminal requires materials
to be filed with the court to constitute the type of public
disclosure contemplated by the statute. According to Oliver,
the Iceland Memo was originally published online pursuant to
a settlement agreement that required Philip Morris to include
documents that were produced in litigation. Philip Morris
14
produced the Iceland Memo in subsequent litigation, and it
was placed in this previously-established online database.
When the subsequent litigation ended, “the district court, as
part of its final judgment, ordered [Philip Morris], among
others, to maintain an ‘Internet Document Website’ until
September 1, 2016, which was to include, among other things,
the documents previously placed in its [settlement] database.”
Reply Br. at 25. Based on this timeline, and because the
Iceland Memo was not filed with the court, Oliver contends it
was not publicly disclosed in a civil hearing.
Oliver reads the statute and Springfield Terminal too
narrowly. We noted in Springfield Terminal that the FCA’s
jurisdictional bar reflects “congressional efforts to walk a fine
line between encouraging whistle-blowing and discouraging
opportunistic behavior.” 14 F.3d at 651. Accordingly, we
analyzed the jurisdictional bar “in the context of these twin
goals of rejecting suits which the government is capable of
pursuing itself, while promoting those which the government
is not equipped to bring on its own.” Id. Furthermore, we
explained that “[i]t is clear from statutory context that the
term ‘hearing’ was intended to apply in a broad context of
legal proceedings under § 3730(e)(4)(A).” Id. at 652. Given
the goals of the statute and the “broad context” of a civil
hearing, materials that a court order mandated be publicly
accessible, and were in fact made publicly accessible as a
result of that order, constitute materials disclosed in a civil
hearing for purposes of the FCA’s jurisdictional bar.
Although Oliver acknowledges that the Iceland Memo
was publicly accessible via the internet, he contends that the
history of the Iceland Memo’s publication undermines the
notion that it was “actually” publicly available. The database
contains 4,480,485 documents from an additional 421 cases.
Reply Br. at 26. Because Springfield Terminal distinguished
15
between “theoretically available” and “actually available,”
Oliver contends that the breadth of the database shows that
the Iceland Memo was only theoretically available. We
disagree. Although Oliver couches his argument in terms of
whether the documents are “actually available,” he effectively
argues that public disclosure should turn on whether the
documents are reasonably likely to be discovered. This is not
the standard. The Iceland Memo was in fact actually
available on a court-ordered public website. Because they
were made available on the website in a civil hearing, they
were “actually” made available in accordance with
Springfield Terminal’s rationale. 7
2.
Oliver also argues that the MFC provisions were not
publicly disclosed in an administrative report. Because the
provisions did not “give information” but were the
“information itself,” Oliver contends that the MFC provisions
could not constitute a report. Appellant Br. at 42-44.
In Schindler Elevator Corp. v. United States ex rel. Kirk,
the Supreme Court explained that the “ordinary meaning” of
“report is something that gives information or a notification,
or an official or formal statement of facts or proceedings.”
563 U.S. 401, 407 (2011) (internal citation, quotation marks,
and alterations omitted). The Court reasoned that “[t]his
broad ordinary meaning of ‘report’ is consistent with the
generally broad scope of the FCA’s public disclosure bar.”
Id. In this case, the website provides information on how to
contract with the Exchanges, and it attaches, via hyperlink,
7
Because we hold that the Iceland Memo was publicly disclosed in
a civil hearing, we need not reach whether it was also disclosed
from the news media.
16
the terms and conditions of doing so. J.A. 349. The website
and linked PDF file clearly “give[] information or a
notification, or an official or formal statement of facts,”
Schindler, 563 U.S. at 407 (internal citation, quotation marks,
and alterations omitted). Considering Schindler’s broad
definition of “report,” the website and the MFC provisions
were disclosed in an administrative report, triggering the
jurisdictional bar. 8
C.
Although we conclude that the transactions Oliver alleges
were publicly disclosed through statutorily prescribed
channels, we would still have jurisdiction if Oliver qualifies
as an “original source.” 31 U.S.C. § 3730(e)(4)(B). An
original source must have “direct and independent knowledge
of the information on which the allegations are based.” Id.
“‘Direct’ signifies ‘marked by absence of an intervening
agency.’” Springfield Terminal, 14 F.3d at 656 (quoting
Houck v. Folding Carton Admin. Comm., 881 F.2d 494, 505
(7th Cir. 1989)). In other words, “[i]n order to be ‘direct,’ the
information must be first-hand knowledge.” Findley, 105
F.3d at 690 (emphasis added). “‘Independent knowledge’ is
knowledge that is not itself dependent on public disclosure.”
Springfield Terminal, 14 F.3d at 656; see also Findley, 105
F.3d at 690 (“[A] person who learns of fraud from a public
disclosure can never be an ‘original source.’”). The relator
must “possess direct and independent knowledge of the
‘information’ underlying the allegation, rather than direct and
independent knowledge of the ‘transaction’ itself.”
Springfield Terminal, 14 F.3d at 656; see also Rockwell Int’l
8
Once again, because we conclude that the MFC provisions were
publicly disclosed in an administrative report, we need not reach
whether they were also disclosed from the news media.
17
Corp., 549 U.S. at 473 (“[T]he phrase ‘information on which
the allegations are based’ refers to the relator’s allegations
and not the publicly disclosed allegations.”). Notably, this is
distinct from the knowledge of the “combination of X and Y”
and rather “refers to direct and independent knowledge of any
essential element of the underlying fraud transaction.”
Springfield Terminal, 14 F.3d at 657. In other words, if
Oliver has direct and independent knowledge of information
underlying X or Y, he qualifies as an original source. 9
Here, Oliver contends that he is an original source for
information underlying the X term: the fact that Philip Morris
was selling cigarettes to other purchasers at prices lower than
that which it sold cigarettes to the Exchanges. On remand,
Oliver submitted a sworn declaration outlining how he came
to possess the information underlying his allegation of fraud.
J.A. 448-57. Oliver explained that his company, Medallion,
sold cigarettes to military exchanges located in the United
States. Oliver spoke with Tim Maloney, the tobacco category
buyer for NEXCOM, about overseas pricing. Maloney
informed Oliver that the overseas price was the domestic
price less the amount of federal excise taxes. Oliver informed
Maloney that he “believed” two additional domestic
surcharges would not apply to overseas pricing, which was
based on his status as a market participant and his knowledge
of the 1998 Master Settlement Agreement (“MSA”) between
tobacco companies and attorneys general of 46 states.
Maloney revealed that other overseas suppliers, including
9
Philip Morris argues that Oliver was required to plead original
source allegations in his operative complaint, and having failed to
do so, he cannot claim original source status now. We need not
reach this issue because we conclude the statements in Oliver’s
declaration viewed in conjunction with the allegations of the
complaint do not establish that Oliver is an original source under
the FCA.
18
Philip Morris, did not deduct these additional surcharges.
Based on Maloney’s response, Oliver investigated whether
the additional surcharges were not applicable overseas,
contacting the National Association of Attorneys General’s
(“NAAG”) Tobacco Control Group, which administered the
settlement agreement imposing the additional surcharges.
NAAG and additional “industry contacts, including duty-free
operators and overseas distributors” confirmed that the
surcharges did not apply overseas. Oliver Decl. ¶ 7, J.A. 451.
One of his contacts was Kenny Hasegawa, a co-owner of a
duty-free business in Samoa which was in a market served by
the Exchanges, who confirmed that the cigarettes sold to the
Exchanges were identical to those sold to other overseas
outlets. As a result, Oliver argues that he possesses direct
knowledge of two kinds of information underlying Philip
Morris’s price differential: 1) his knowledge of the industry
practice based on the terms of the MSA, and 2) the
information he gained from his investigation into Philip
Morris’s overseas sales practices. We disagree.
The allegations in Oliver’s complaint and the statements
made in his declaration fail to demonstrate that Oliver
qualifies as an original source. Oliver’s knowledge of the
information underlying the allegation of fraud in the
complaint is not “direct” because Oliver possessed no first-
hand knowledge of Philip Morris’s unlawful price differential,
but rather gained all his knowledge second-hand. Oliver
argues that “the fact that a relator undertakes investigatory
efforts does not prevent the information derived from that
investigation from being ‘direct.’” Appellant Br. at 57-58.
However, it is not Oliver’s investigation but his lack of first-
hand knowledge prompting his investigation that precludes
his original source status.
19
Our Circuit has found a relator who conducts an
investigation to be an “original source,” but only where the
relator possessed some direct knowledge of the conduct
implicated by the fraud. For example, in Springfield
Terminal, we held that a relator who conducted investigatory
efforts was an “original source” under § 3730(e)(4)(B).
14 F.3d at 657. There, the relator had participated in a prior
federal action related to an arbitration dispute under the
Railway Labor Act. Id. at 647. In seeking to set aside the
arbitration award, the relator obtained the arbitrators’ pay
vouchers during discovery and realized that the arbitrators
billed the government for “activities unrelated to the
arbitration proceedings.” Id. The relator thereafter filed a qui
tam complaint, alleging that the arbitrator had billed the
government for days he had not worked on the proceeding.
Id. at 648. The relator’s “suspicions first arose upon
inspection of [the] pay vouchers” because, “[b]ased upon its
own involvement in the arbitration,” the relator knew that the
arbitrator had no work to perform on days he billed the
government. Id. The relator “then conducted further
investigation on its own” by calling numbers listed on the
arbitrator’s telephone records, which revealed that the
arbitrator had been out of the country for personal reasons for
which he had billed the government. Id.
We held that it was “beyond question” that the relator
was an original source. Id. at 657. “[T]he pay vouchers and
phone records did not themselves suffice to indicate fraud.”
Id. As a result, the relator “bridged the gap by its own efforts
and experience, which in th[at] case included personal
knowledge of the arbitration proceedings and interviews with
individuals and businesses identified in the telephone
records.” Id. (emphasis added). The relator “started with
innocuous public information; it completed the equation with
information independent of any preexisting public
20
disclosure.” Id. The relator’s personal knowledge of the
arbitration proceedings shows that “a relator need not have
first-hand knowledge of all of the information supporting his
allegations, but he must have at least some first-hand
knowledge of that information.” U.S. ex rel. Antoon v.
Cleveland Clinic Found., 788 F.3d 605, 621 (6th Cir. 2015)
(Gibbons, J., concurring) (citation omitted).
Springfield Terminal thus demonstrates that in order to
have “direct” knowledge for purposes of the original source
exception, a relator must have some first-hand knowledge that
would lead him to believe that a fraud had been committed.
Cases from other circuits confirm this approach. For
example, in Minnesota Association of Nurse Anesthetists v.
Allina Health Systems Corp., the Eighth Circuit held that the
relator organization’s members had direct knowledge because
they witnessed the fraudulent conduct of filling out billing
forms with misleading information. 276 F.3d 1032, 1050 (8th
Cir. 2002). The members also had direct knowledge of the
“true state of facts” contradicting the fraud because they had
witnessed the actual conduct that the fraud misrepresented.
Id. Likewise, in Cooper v. Blue Cross & Blue Shield, the
relator’s own insurance claims prompted him to conduct
research that led to allegations of Medicare fraud against his
insurance company. 19 F.3d 562, 564-65 (11th Cir. 1994)
(per curiam). The Eleventh Circuit held that the jurisdictional
bar did not apply because the relator had direct knowledge of
the fraud through “years of his own claims processing,
research, and correspondence with members of Congress and
[the federal agency].” Id. at 568. Finally, in United States ex
rel. Bahrani v. Conagra, Inc., the Tenth Circuit held that a
relator’s affidavit “stating that he personally observed” the
fraudulent conduct precluded summary judgment on whether
he qualified as an original source. 465 F.3d 1189, 1209 (10th
Cir. 2006); see also U.S. ex rel. Bahrani v. Conagra, Inc., 624
21
F.3d 1275, 1287-88 (10th Cir. 2010) (relator “had to establish
he was ‘personally aware of at least one instance of [a]
fraudulent’ certificate change” (quoting Glaser v. Wound
Care Consultants, Inc., 570 F.3d 907, 921 (7th Cir. 2009)));
U.S. ex rel. Lam v. Tenet Healthcare Corp., 287 F. App’x
396, 400 (5th Cir. 2008) (“Relators found to have direct and
independent knowledge are those who actually viewed source
documents or viewed first hand the fraudulent activity that is
the basis for their qui tam suit.”). But see Antoon, 788 F.3d at
618 (“[T]here is nothing in the statutory text that limits ‘direct
knowledge’ to first-hand knowledge.”).
Similarly, our sister circuits have routinely held that
relators do not qualify for the original source exemption
where the relator learns of the fraudulent activity from a third
party. In Glaser v. Wound Care Consultants, Inc., the relator
alleged that a medical facility committed Medicaid fraud
when it billed Medicaid for services performed by a doctor
that were actually performed by a nurse practitioner or
physician’s assistant, which would have resulted in a lower
rate. 570 F.3d at 911-12. The Seventh Circuit concluded the
relator was not an original source despite her knowledge that
a nurse practitioner treated her because “the fraud alleged
pertain[ed] to the billing, not the treatment,” and “she had no
knowledge whatsoever of the fraudulent conduct before
hearing from an attorney.” Id. at 921.
In United States ex rel. Ondis v. City of Woonsocket, in
response to the mayor’s statements that he would do away
with all section 8 housing, the relator investigated whether the
city illegally received federal grants from the Department of
Housing and Urban Development. 587 F.3d 49, 52 (1st Cir.
2009). The relator alleged fraud based on “specific instances
. . . previously disclosed in daily newspapers of general
circulation” or otherwise “unarguably . . . from the public
22
domain.” Id. The First Circuit concluded that the relator
lacked direct knowledge because “[k]nowledge that is based
on research into public records, review of publicly disclosed
materials, or some combination of these techniques is not
direct.” Id. at 59.
Finally, the Fourth Circuit also found such mediated
knowledge insufficient for original source status in United
States ex rel. Grayson v. Advanced Management Technology,
Inc., 221 F.3d 580 (4th Cir. 2000). In Grayson, the relators
were lawyers who had represented a company in a dispute
about the award of a government contract. Id. at 581. In the
course of the representation, the relators learned that the
company that had been awarded the contract misrepresented
the makeup of the personnel who would perform the contract.
Id. at 581-82. Relators filed a qui tam action, alleging that
such misrepresentations violated the FCA. Id. at 582. The
Fourth Circuit concluded that relators were not an original
source because they “at best verified” the information
contained in an administrative protest. Id. at 583.
With these principles in mind, we “look to the factual
subtleties of the case before [us] and attempt to strike a
balance between those individuals who, with no details
regarding its whereabouts, simply stumble upon a seemingly
lucrative nugget and those actually involved in the process of
unearthing important information about a false or fraudulent
claim.” U.S. ex rel. Laird v. Lockheed Martin Eng’g & Sci.
Servs. Co., 336 F.3d 346, 356 (5th Cir. 2003), abrogated on
other grounds by Rockwell Int’l Corp., 549 U.S. at 472. Here,
Oliver possesses no direct knowledge of information that
prompted his investigation into Philip Morris. Unlike the
litigants in Springfield Terminal, who possessed first-hand
knowledge of the days on which the arbitrator conducted
proceedings, Oliver does not allege any direct knowledge of
23
transactions involving Philip Morris. Oliver does not allege
that he worked for Philip Morris, sold cigarettes overseas on
behalf of Philip Morris, or purchased cigarettes overseas from
Philip Morris. He learned of Philip Morris’s sales practices
from Maloney, a third party. Maloney’s knowledge prompted
Oliver to investigate whether the surcharges applied. Because
Oliver stumbled upon Philip Morris’s overseas pricing when a
third party revealed the pricing to him, he does not possess
direct information underlying Philip Morris’s unlawful price
differential.
Furthermore, neither Oliver’s background information
nor the knowledge he gained through his investigation
constitutes direct information sufficient to confer original
source status. “Courts must be mindful of suits based only on
‘secondhand information, speculation, background
information or collateral research.’” U.S. ex rel. Atkinson v.
PA. Shipbuilding Co., 473 F.3d 506, 523 (3d Cir. 2007)
(quoting U.S. ex rel. Hafter D.O. v. Spectrum Emergency
Care, Inc., 190 F.3d 1156, 1162-63 (10th Cir. 1999)). The
FCA was intended to encourage “those ‘who are either close
observers or otherwise involved in the fraudulent activity’ to
come forward.” U.S. ex rel. Barth v. Ridgedale Elec., Inc., 44
F.3d 699, 703-04 (8th Cir. 1995) (quoting S. Rep. No. 99-345,
at 4 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5269).
Recognizing Oliver’s background knowledge of the MSA and
his contact with NAAG and Hasegawa as direct would
undermine this intent, as Oliver was not a close observer of
any of these facts. Cf. Atkinson, 473 F.3d at 523 (finding
relator was not an original source because “[a]ny member of
the public could have” checked the public records underlying
the qui tam suit). Accordingly, because Oliver lacks any
direct information about the price differential Philip Morris
charged the Exchanges, he is not an original source.
24
***
Because the transactions creating an inference of fraud
were publicly disclosed and Oliver is not an original source,
we affirm the judgment of the District Court.
So ordered.