D.C. Circuit Upholds Public-Disclosure-Bar Dismissal Based On Information Posted to Websites
Last week, the U.S. Court of Appeals for the D.C. Circuit upheld a district court’s dismissal of a qui tam action under the oft-litigated, “public disclosure bar,” where the transactions that gave rise to an inference of fraud were “available” on the internet. See United States ex rel Oliver v. Phillip Morris USA Inc., No. 15-7049 (D.C. Cir. June 21, 2016). The public disclosure bar requires dismissal of FCA claims that are based on information that have been publicly disclosed through one of the enumerated channels set forth in the FCA, unless the relator is an “original source of the information.” 31 U.S.C. § 3730(e)(4).
The underlying allegations in the lawsuit were that Phillip Morris USA (“Phillip Morris”) had violated the FCA by charging the Navy Exchange Service Command (“NEXCOM”) and Army and Air Force Exchange Service (“AAFES”) prices for cigarettes that violated the terms of their contracts. The “Most Favored Customer” provisions of their respective contracts required that Phillip Morris sell cigarettes to NEXCOM and AAFES at prices equal to or more favorable than the prices that Phillip Morris sold the same product to other non-governmental and governmental purchasers. Despite this requirement, Phillip Morris allegedly sold cigarettes to NEXCOM and AAFES at significantly higher prices than those offered to other customers.
The district court dismissed the action finding a lack of jurisdiction under the FCA’s public disclosure bar. The D.C Circuit affirmed the lower court’s ruling, finding that the transactions the relator alleged gave rise to an inference of fraud were “publicly disclosed through a statutorily enumerated channel” and the relator did 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.”
Pursuant to the FCA, the enumerated channels for public disclosure include disclosure of such information in a Federal criminal, civil, or administrative hearing in which the government or its agent is a party. 31 U.S.C. § 3730(e)(4)(A). The D.C. Circuit, interpreting a prior version of the FCA, found that concerns with Phillip Morris’ pricing practices were disclosed under the “civil hearing” prong. Such disclosure occurred because Phillip Morris, and other parties, in a separate litigation were required by court order to post millions of documents to a public website. Among such documents was an inter-office memorandum discussing concerns with Phillip Morris’ pricing differential practices. The Court rejected the relator’s needle-in-a-haystack argument that the memorandum was not likely to be discovered given the millions of other documents that were also available on the website, holding that the standard is whether the information is “actually” available. The Court was also unpersuaded by the fact that the pricing differential discussed in the memo was from a different time period than the allegations underlying the relator’s FCA claim. The Court found that the price difference alleged in the complaint was “substantially similar” to the price differential in the memo, and thus constitutes public disclosure.
The Court also found that the relevant contract terms, namely the “Most Favored Customer” provisions were publicly disclosed in an “administrative report”– another channel enumerated by the FCA– where NEXCOM and AAFES’s website contained a hyperlink to the terms and conditions for contracting with them.
The D.C. Circuit’s ruling in Oliver provides further ammunition to defeat qui tam actions on jurisdictional grounds pursuant to the FCA’s public disclosure bar. While the decision was confined to interpreting the 2006 version of the FCA statute, the Court’s analysis of what qualifies as a civil hearing and administrative report is likely to be applied similarly to determine what constitutes a Federal civil hearing and a Federal report under the current language of the statute.