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

United States District Court, District Circuit

June 13, 2013



COLLEEN KOLLAR-KOTELLY United States District Judge

The plaintiff/relator in this case, Anthony Oliver (“Oliver”), brings suit against Defendant Philip Morris USA Inc. (“Defendant”) pursuant to the False Claims Act (the “FCA”), 31 U.S.C. §§ 3729 et seq. Presently before the Court is Defendant’s [53/62] Motion to Dismiss.[1] Upon consideration of the parties’ submissions, the applicable authorities, and the record as a whole, the Court shall GRANT Defendant’s motion and dismiss this case for lack of subject matter jurisdiction.[2]


Oliver, President and CEO of Medallion Brands International Co., a tobacco company, filed this qui tam suit under seal on January 4, 2008. ECF No. [1]. On September 13, 2011, the United States advised the Court that it would not intervene in the case. ECF No. [28]. In the Second Amended Complaint, ECF No. [49] (hereinafter the “Complaint”), which is the operative complaint in this action, Oliver alleges that Defendant violated the FCA by falsely certifying that it was providing the United States military with the best price for its cigarettes.

Specifically, Oliver alleges that for a number of years and at least from 2002 until the time the Complaint was filed, Defendant supplied the Navy Exchange Service Command (“NEXCOM”) and the Army and Air Force Exchange Service (“AAFES”) with cigarettes. Compl. ¶ 20. Oliver alleges that Defendant’s sales of cigarette products to NEXCOM and AAFES were subject to “most favorable customer” warranties of NEXCOM’s and AAFES’s contracting requirements. Id. ¶ 21. According to Oliver, during all times relevant to the Complaint, NEXCOM’s contracting requirements provided, in pertinent part: “The Contractor certifies that prices, terms and conditions offered under this contract, including consideration of any discount rebate arrangements, do not exceed prices then being charged the Contractor’s most favored customer or another military exchange for like items.” Id. ¶ 14. Similarly, for most of the period covered by the Complaint, AAFES’s contracting requirements required a vendor to provide the following price warranties: “The Contractor warrants that during this contract, the net price to AAFES (considering each unit price, discounts, allowances, co-op advertising, rebates, and other terms and conditions) for each item purchased will be as favorable as, or better than, the price the item is being sold by the Contractor to other customers under the same or similar conditions and in the same general geographical area pursuant to agreements made during the same period. In the event the Contractor subsequently agrees to sell the item to another customer at a lower price, the Contractor is obligated to promptly offer the lower price, in writing, to the Contracting Officer.” Id. ¶ 16.[3]

Oliver alleges that at all times mentioned in the Complaint, Defendant has, through the submission of its purchase orders and other contract documents (both of which Oliver alleges incorporated the “most favorable customer” warranties, id. ¶ 22), knowingly represented to NEXCOM and AAFES that the prices it was charging for its cigarette products complied with the “most favorable customer” warranties. Id. ¶ 23. However, he claims that, throughout the period covered by the Complaint, Defendant has in fact “knowingly sold cigarette products identical to the cigarettes sold to AAFES and NEXCOM to affiliates of defendant – including, but not limited to, Philip Morris Duty Free, Inc. and Philip Morris International, Inc. – at prices lower than the prices such cigarettes were sold to NEXCOM and AAFES.” Id. ¶ 25. Oliver further contends that Defendant sold these cigarette products to its affiliates, knowing that its affiliates were, in turn, re-selling the cigarettes to foreign purchasers in markets similarly situated to NEXCOM and AAFES at prices lower than the prices charged to NEXCOM and AAFES. Id.

Accordingly, Oliver alleges that Defendant falsely certified compliance with the “most favorable customer” warranties and therefore violated the FCA in two ways – first, by selling its cigarette products to its affiliates (whom Oliver claims have always been treated by Defendant as independent companies) for less than it was selling to the military, and/or second, by knowingly using its affiliates as conduits through which to sell its cigarettes to the civilian duty free market for less than it was selling to the military. Id. ¶ 29; Pl.’s Opp’n at 2. Either way, Oliver alleges that, throughout the period covered by the Complaint, Defendant has charged NEXCOM and AAFES millions of dollars more, annually, for its cigarette products than has been paid by either Defendant’s affiliates purchasing such products or foreign purchasers buying such products from Defendant’s affiliates. Compl. ¶ 29. While Oliver provides as an “example” a single allegation of an alleged price discrepancy between the cost of Defendant’s cigarettes in the civilian duty-free market in American Samoa and the price at which the same cigarettes were purchased by NEXCOM for the Navy on Guam, see Id . ¶ 26, the Complaint otherwise speaks in very broad terms and contains neither geographic limitations nor specific allegations regarding the timing, number, or other circumstances surrounding the alleged execution of the relevant contracts or purchase orders. See generally id. It is Oliver’s position that, because he has not yet been afforded discovery in this matter, he cannot be expected to provide greater specification of the details of the allegedly fraudulent purchase orders at this time. Id. ¶ 30.


Defendant moves to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction or, in the alternative, Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief. The Court must address Defendant’s jurisdictional challenge before the merits of the case may be considered. See Vt. Agency of Nat’l Resources v. U.S. ex rel. Stevens, 529 U.S. 765, 778 (2000) (“Questions of jurisdiction, of course, should be given priority – since if there is no jurisdiction there is no authority to sit in judgment of anything else.”). Because the Court concludes that this case must be dismissed under 12(b)(1) for lack of subject matter jurisdiction, it need not address Defendant’s alternative argument under 12(b)(6).

A court must dismiss a case pursuant to Rule 12(b)(1) when it lacks subject matter jurisdiction. In determining whether there is jurisdiction, the Court may “consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court’s resolution of disputed facts.” Coalition for Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003) (citations omitted); see also Jerome Stevens Pharm., Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253 (D.C. Cir. 2005) (“[T]he district court may consider materials outside the pleadings in deciding whether to grant a motion to dismiss for lack of jurisdiction.”). “At the motion to dismiss stage, counseled complaints, as well as pro se complaints, are to be construed with sufficient liberality to afford all possible inferences favorable to the pleader on allegations of fact.” Settles v. U.S. Parole Comm’n, 429 F.3d 1098, 1106 (D.C. Cir. 2005). In spite of the favorable inferences that a plaintiff receives on a motion to dismiss, it remains the plaintiff's burden to prove subject matter jurisdiction by a preponderance of the evidence. Am. Farm Bureau v. Envtl. Prot. Agency, 121 F.Supp.2d 84, 90 (D.D.C. 2000).

The FCA prohibits fraudulent claims for payment from the United States, § 3729(a), [4]and authorizes private individuals (referred to as “relators”) to bring civil actions on behalf of the Government based on their knowledge of fraud committed against the Government, id. § 3730(b)(1). The FCA incentivizes these so-called qui tam actions by relators with inside information by permitting those relators to share in the Government’s recovery of the funds that were the subject of the false claim or claims. See Id . § 3730(d). However, the ability of a private party to bring such actions is limited by the “public disclosure” provision of the FCA, which divests courts of subject matter jurisdiction over suits alleging facts that were publicly disclosed in certain specified forums before the suit was filed, where the individual is not an “original source” of that information. See Id . § 3730(e)(4)(A).[5] It is this “public disclosure” bar on which Defendant’s Rule 12(b)(1) motion relies.

The version of the FCA in effect when Oliver filed his Complaint provided, in pertinent part, that “[n]o court shall have jurisdiction over an action … 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 person bringing the action is an original source of the information.” Id. The D.C. Circuit has construed the statutory phrase “based upon” to mean “‘supported by, ’ not ‘derived from.’” U.S. ex rel. Schwedt v. Planning Research Corp., Inc., 39 F.Supp.2d 28, 33 (D.D.C. 1999) (quoting U.S. ex rel. Findley v. FCP-Boron Employees’ Club, 105 F.3d 675, 682 (D.C. Cir. 1997)); accord U.S. ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F.Supp.2d 25, 47 (D.D.C. 2007). In other words, the public disclosure bar “encompass[es] situations in which the relator’s complaint repeats what the public already knows, even though [he] had learned about the fraud independent of the public disclosures.” Findley, 105 F.3d at 683. See also U.S. ex rel. Settlemire v. Dist. of Columbia, 198 F.3d 913, 918 (D.C. Cir. 1999) (“Under this regime, jurisdiction is lacking whenever the relator files a complaint describing allegations or transactions substantially similar to those in the public domain, regardless of the actual source for the information in the particular complaint.”) (citations and internal quotation marks omitted).

The FCA excepts from its public disclosure jurisdictional bar situations where the relator is an “original source” of the relevant information. An “original source” is a person who has “direct and independent knowledge” of the information on which the allegations in his Complaint are based and who provided that information to the Government before filing suit. Id. § 3730(e)(4)(B); see also U.S. ex rel. Green v. Serv. Contract Educ. and Training Trust Fund, 843 F.Supp.2d 20, 30 (D.D.C. 2012).[6] “The D.C. Circuit has defined ‘direct’ knowledge as knowledge ‘marked by absence of intervening agency, ’” Green, 843 F.Supp.2d at 30 (citing United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994)), “or ‘first-hand knowledge, ’” id. (citing Findley, 105 F.3d at 690), and “independent knowledge” as “‘knowledge that is not itself dependent on public disclosure, ’” id. (citing Quinn, 14 F.3d at 656).

Together, the public disclosure bar and original source exception reflect congressional consideration of the “optimal balance” between “encouraging suits by ‘whistle-blowing insiders with genuinely valuable information’ and discouraging claims by ‘opportunistic plaintiffs who have no significant ...

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