United States ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC

• Decision Date: 02 February 2016
• Docket Number: No. 14–4292.,14–4292.
• Parties: 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.
• Court: U.S. Court of Appeals — Third Circuit

812 F.3d 294

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.

No. 14–4292.

United States Court of Appeals, Third Circuit.

Argued on Sept. 9, 2015.

Opinion filed: Feb. 2, 2016.

Clay M. Naughton, Esquire, (Argued), Moore & Company, Coral Gables, FL, Phillip A. Giordano, Esquire, William M. Kelleher, Esquire, Gordon Fournaris & Mammarella, Wilmington, DE, Counsel for Appellant.

Robert S. Salcido, Esquire, (Argued), Akin, Gump, Strauss, Hauer & Feld, Washington, DC, Counsel for Appellees.

Before: VANASKIE, NYGAARD and RENDELL, Circuit Judges.

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 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 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 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 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.

(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 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...