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United States ex rel. Oliver v. Philip Morris USA Inc.

United States Court of Appeals, District of Columbia Circuit

August 26, 2014

UNITED STATES OF AMERICA, EX REL. ANTHONY OLIVER, APPELLANT
v.
PHILIP MORRIS USA INC., A VIRGINIA CORPORATION FORMERLY KNOWN AS PHILIP MORRIS, INC., APPELLEE

Argued May 7, 2014

Page 37

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 filed by Circuit Judge PILLARD.

OPINION

Page 38

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,

Page 39

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 el 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, 304 U.S.App.D.C. 347 (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 ...


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