United States ex rel. Oliver v. Philip Morris U.S. Inc.

• Decision Date: 26 August 2014
• Docket Number: No. 13–7105.,13–7105.
• Citation: 763 F.3d 36
• Parties: UNITED STATES of America, ex rel. Anthony OLIVER, Appellant v. PHILIP MORRIS USA INC., A Virginia Corporation Formerly Known as Philip Morris, Inc., Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

763 F.3d 36

UNITED STATES of America, ex rel. Anthony OLIVER, Appellant

v.PHILIP MORRIS USA INC., A Virginia Corporation Formerly Known as Philip Morris, Inc., Appellee.

No. 13–7105.

United States Court of Appeals, District of Columbia Circuit.

Argued May 7, 2014.

Decided Aug. 26, 2014.

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.

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 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 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 ex rel. Wilson, 559 U.S. 280, 294–95, 130 S.Ct. 1396, 176 L.Ed.2d 225 (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

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] 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, ––– U.S. ––––, 131 S.Ct. 1885, 1890, 179 L.Ed.2d 825 (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).

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 if X and Y, i.e., both the pricing disparities and ...