United States Ex Rel. Oliver v. Philip Morris USA Inc.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 15, 2016 Decided June 21, 2016

No. 15-7049

UNITED STATES, EX REL. ANTHONY OLIVER,

AND

ANTHONY OLIVER,

APPELLANT

v.

PHILIP MORRIS USA INC., A VIRGINIA CORPORATION,

FORMERLY KNOWN AS PHILIP MORRIS INCORPORATED,

APPELLEE

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 brief were Carl S. Kravitz and Jason M. Knott.

Elizabeth P. Papez argued the cause for appellee. With

her on the brief were Andrew C. Nichols, Eric M. Goldstein,

Eric T. Werlinger, and Thomas J. Frederick. Ilan Wurman

entered an appearance.

Before: ROGERS and WILKINS, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

2

Opinion for the Court filed by Circuit Judge WILKINS.

WILKINS, Circuit Judge: Appellant and relator Anthony

Oliver brings this qui tam action alleging that Appellee Philip

Morris USA violated the False Claims Act (“FCA”), 31

U.S.C. §§ 3729-3733 (2006), 1 by charging the Navy

Exchange Service Command (“NEXCOM”) and the Army

and Air Force Exchange Service (“AAFES”) prices for

cigarettes that violated the terms of their contracts. The

District Court concluded that it lacked jurisdiction to hear the

claim under the FCA’s public disclosure bar, 31 U.S.C.

§ 3730(e)(4)(A). After reviewing the record, we affirm the

judgment of the District Court. The transactions that Oliver

contends create an inference of fraud were publicly disclosed

through a statutorily enumerated channel, triggering the

jurisdictional bar. Additionally, Oliver does 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.

I.

Oliver is the President and CEO of Medallion Brands

International Company (“Medallion”), which sells tobacco

products to civilian and military markets in the United States

and abroad. 2 NEXCOM and AAFES (collectively “the

1

All citations are to the 2006 version of the statute unless otherwise

noted.

2

The facts are taken from the second amended complaint

(“Complaint” or “Compl.”) and Oliver’s supporting declaration.

For purposes of a motion to dismiss, the facts alleged in the

Complaint are taken to be true, and all inferences are drawn in

Oliver’s favor. See U.S. ex rel. Davis v. District of Columbia, 679

F.3d 832, 834-35 (D.C. Cir. 2012). We may also consider Oliver’s

3

Exchanges”) provide goods and services to customers in the

military community. Each of the Exchanges’ contracts with

its vendors includes “Most Favored Customer” provisions

(the “MFC provisions”). These provisions ensure that “the

prices paid by [the Exchanges] for the products they purchase

are equal to or more favorable than the prices, including any

customer discounts, at which the vendors sell like products to

other non-governmental and government purchasers.”

Compl. ¶ 9, J.A. 17. Philip Morris USA (“Philip Morris” or

“PM USA”) has, since at least 2002, sold cigarette products to

the Exchanges pursuant to contracts including the MFC

provisions. Despite Philip Morris’s knowledge of the MFC

provisions, Philip Morris sold the Exchanges at least 1.8

million cartons of cigarettes at prices higher than the MFC

provisions require. Specifically, Philip Morris sold cigarettes

to Philip Morris Duty Free, Inc., (“PM DFI”) and Philip

Morris International, Inc. (“PMI”), at prices lower than the

prices sold to the Exchanges. One of these affiliates

purchased Philip Morris cigarettes for resale on American

Samoa at a cost of $13.83 per carton, while NEXCOM

purchased cigarettes for the Navy on Guam at a cost of $27.77

less a $4.00 rebate, for a price differential of $9.94.

Oliver filed this action in 2008 alleging that these

transactions violated the MFC provisions, and, as a result, the

FCA. The FCA removes jurisdiction from the federal courts

for certain actions brought under it. 31 U.S.C. § 3730(e). 3

Specifically, the statute provides:

declaration to determine whether we have jurisdiction. See Coal.

for Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C.

Cir. 2003).

3

This provision was amended by the Patient Protection and

Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (2010).

4

No court shall have jurisdiction over an action

under this section 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 action is brought by the Attorney General

or the person bringing the action is an original

source of the information.

Id. § 3730(e)(4)(A). 4 The FCA further defines an original

source 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). 5

The District Court dismissed Oliver’s complaint in 2013,

reasoning that Oliver’s action was subject to the FCA’s

jurisdictional bar and that he did not qualify as an original

source. U.S. ex rel. Oliver v. Philip Morris, 949 F. Supp. 2d

238, 251 (D.D.C. 2013). Oliver appealed, and we vacated and

remanded. U.S. ex rel. Oliver v. Philip Morris (Oliver I), 763

F.3d 36, 44 (D.C. Cir. 2014). In Oliver I, we held that the

FCA’s public disclosure bar was not triggered because “Philip

Morris . . . made no attempt to show that its allegedly false

certifications of compliance with [the MFC] provisions were

in the public domain.” Id. at 41. We rejected Philip Morris’s

contention that Government awareness of the MFC provisions

4

This provision is also referred to as the “public disclosure bar.”

5

The current version of the statute defines an original source as “an

individual who . . . has knowledge that is independent of and

materially adds to the publicly disclosed allegations or

transactions.” 31 U.S.C. § 3730(e)(4)(B) (2012).

5

constituted public disclosure that triggers the FCA’s

jurisdictional bar. Id. at 42. Additionally, we held that the

Iceland Memo, a 1999 inter-office memorandum discussing

concerns about cigarette pricing at a United States naval

station in Iceland, did not publicly disclose the MFC

provisions or Philip Morris’s obligation to charge the

Exchanges its lowest price for cigarettes. Id. at 43. We also

rejected efforts by Philip Morris after oral argument to

demonstrate that the MFC provisions were generally available

so as to trigger the public disclosure bar because it had

abandoned those arguments on appeal and submitted new

evidence that we were unable to properly evaluate. Id. at 43-

44. Accordingly, we vacated the District Court’s decision and

remanded the case for further proceedings. Id. at 44.

On remand, Philip Morris moved again to dismiss the

complaint for lack of subject matter jurisdiction. This time,

Philip Morris argued that the FCA’s public disclosure bar was

triggered because the MFC provisions were published online

prior to the filing of the complaint. The District Court

concluded that, based on the archived webpages Philip Morris

submitted in conjunction with its motion, the MFC provisions

were publicly disclosed in an “administrative report” and in

the “news media,” and that the allegations or transactions in

the complaint were substantially similar to those in the public

domain. U.S. ex rel. Oliver v. Philip Morris USA, Inc., 101 F.

Supp. 3d 111, 123-27 (D.D.C. 2015). The District Court also

concluded that Oliver did not qualify as an “original source”

under the statute and once more dismissed the Complaint. Id.

at 127-29.

II.

We review de novo a dismissal for lack of subject matter

jurisdiction. Oliver I, 763 F.3d at 40.

6

A.

As we explained in Oliver I, “[t]he 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.’” 763 F.3d at 40 (quoting 31

U.S.C. § 3730(e)(4)(A)). “Transaction” in this sense “refers

to two or more elements that, when considered together, give

rise to an inference that fraud has taken place.” Id. at 40

(citing U.S. ex rel. Springfield Terminal Co. v Quinn, 14 F.3d

645 (D.C. Cir. 1994)). Springfield Terminal provides the

familiar equation we use in such cases:

[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 were in the public

domain.

14 F.3d at 654 (final two emphases added). In other words,

we lack subject matter jurisdiction if either of the following

has been publicly disclosed: (1) the allegation of fraud itself,

or (2) the transactions that give rise to an inference of fraud.

Applied to this case, the transaction would be “the fact that

Philip Morris was not providing the Exchanges with the best

price for cigarettes (X) plus the fact that Philip Morris falsely

7

certified that it complied with the Most Favored Customer

provisions (Y),” which “gives rise to the conclusion Philip

Morris committed fraud (Z).” Oliver I, 763 F.3d at 41.

Accordingly, we “lack[] jurisdiction over Oliver’s suit only if

X and Y, i.e., both the pricing disparities and Philip Morris’s

false certifications of compliance with the Most Favored

Customer provisions, were in the public domain.” Id.

As a threshold matter, though not invoking the law of the

case doctrine, Oliver appears to argue that we already held

that the transactions were not publicly disclosed. See

Appellant Br. at 29. This is too broad a reading of Oliver I.

In our earlier opinion, we concluded that “[t]he Iceland

Memo, standing alone, does not communicate that there was

anything legally impermissible about the prices Philip Morris

was charging the Exchanges.” Oliver I, 763 F.3d at 43

(emphasis added). In evaluating only the Y term, we found

that neither the MFC provisions nor Philip Morris’s

fraudulent certifications that it complied with them was

publicly disclosed. Id. at 41-43. We explicitly did not resolve

the potential disclosure of the pricing disparities in the memo.

Id. at 41. Oliver I thus never reached the X term and only

reflects that the Iceland Memo does not provide the Y term.

On remand, the District Court concluded that the Iceland

Memo provided the X term and was publicly disclosed, and

that Philip Morris provided evidence that the Y term was also

publicly disclosed. Oliver, 101 F. Supp. 3d at 123-27.

Accordingly, we must resolve whether the District Court was

correct in holding that these X and Y terms constitute publicly

disclosed transactions.

1.

We turn first to whether the Iceland Memo publicly

discloses the price differential alleged in Oliver’s Complaint.

8

Oliver argues that the Iceland Memo does not publicly

disclose that Philip Morris was not providing cigarettes at the

best price to the Exchanges. Oliver concedes that “the

Iceland Memo does reflect a differential between the prices

charged to the military and to private parties.” Appellant Br.

at 34. However, he argues that the price differential revealed

in the memo is not the same as what he alleges in his

complaint because the Iceland Memo involves different time

periods, MFC provisions, and corporate sales.

“We have explained that a suit is ‘based upon’ publicly

disclosed ‘allegations or transactions’ when the allegations in

the complaint are ‘substantially similar’ to those in the public

domain.” U.S. ex rel. Davis v. District of Columbia, 679 F.3d

832, 836 (D.C. Cir. 2012) (quoting U.S. ex rel. Findley v.

FPC-Boron Emps.’ Club, 105 F.3d 675, 682 (D.C. Cir. 1997),

abrogated on other grounds by Rockwell Int’l Corp. v. United

States, 549 U.S. 456 (2007)); see also Findley, 105 F.3d at

690 (“We have already decided that the public disclosure bar

is triggered when a relator files an action that is substantially

similar to ‘allegations or transactions’ already in the public

domain.”). “This rule prevents suits by those other than an

‘original source’ when the government already has enough

information ‘to investigate the case and to make a decision

whether to prosecute’ or where the information ‘could at least

have alerted law-enforcement authorities to the likelihood of

wrongdoing.’” Davis, 679 F.3d at 836 (quoting Springfield

Terminal, 14 F.3d at 654). Merely providing “more specific

details” about what happened does not negate substantial

similarity. Id. Additionally, “a relator’s ability to reveal

specific instances of fraud where the general practice has

already been publicly disclosed is insufficient to prevent

operation of the jurisdictional bar.” U.S. ex rel. Settlemire v.

District of Columbia, 198 F.3d 913, 919 (D.C. Cir. 1999)

(citing Findley, 105 F.3d at 687-88).

9

The price difference alleged in the Complaint is

substantially similar to the price difference the Iceland Memo

describes. According to the Complaint, Philip Morris sold

identical cigarettes to PM DFI and PMI “at prices lower than

the prices such cigarettes were sold to” the Exchanges.

Compl. ¶ 25, J.A. 21. The Complaint further alleges that

over the period covered by this . . . Complaint,

one or more of defendant’s affiliates purchased

defendant’s cigarette products from defendant

(at a price well below the price charged to

NEXCOM) and re-sold such cigarettes to the

civilian duty-free market on American Samoa.

Id. ¶ 26, J.A. 21. Also according to the Complaint, “[s]imilar

price differentials have existed throughout th[is] period . . .

for sales by defendant’s affiliates of defendant’s cigarettes to

the duty-free and foreign markets comparably situated to

AAFES overseas military exchanges.” Id. ¶ 27, J.A. 21.

The Iceland Memo, dated December 28, 1999, outlines

Philip Morris’s general practice of selling Philip Morris

products to the military at a price higher than that which

Philip Morris sells cigarettes off its duty-free price list to

other overseas Philip Morris customers. It states that “PMI

Duty-Free list prices are lower than PM USA Military tax-

free prices and we frequently receive inquiries from the

Service Headquarters on why they can’t purchase tax-free

product at these lower prices.” J.A. 74. The memo was

generated as a result of a “letter written by the Director,

Morale, Welfare & Recreation (MWR) Department at the

U.S. Naval station in Keflavik, Iceland to a duty-free

wholesaler in Norfolk, Virginia” because “the MWR facility

. . . tried, unsuccessfully, to have a duty-free wholesaler . . .

10

supply them with Philip Morris products.” J.A. 74. The

memo notes that “PM USA is responsible for U.S. Military

markets worldwide and is the source for product to MWR

facilities” which “are independent operations and not

associated with [the Exchanges].” J.A. 74.6 The memo

attributes the price differential to obligations to comply with

Surgeon General warnings. Although Oliver provides more

specific details about this general practice in his complaint,

such as the $4.00 price differential between affiliate resale in

American Samoa and NEXCOM resale in Guam, these

additional details do not mean the transaction was not already

publicly disclosed. Cf. Settlemire, 198 F.3d at 919.

Oliver’s attempts to distinguish the Iceland Memo are

unpersuasive. Although the Iceland Memo predates the sale

of cigarettes alleged in the complaint, we have found

“disclosures going back as far as forty years prior to the

relator’s lawsuit . . . sufficient to disclose the practices which

formed the basis of the relator’s suit.” Id. Accordingly, the

time difference does not undermine the disclosure of Philip

Morris’s general practice. Furthermore, Oliver’s remaining

objections amount to an argument that the Iceland Memo fails

to establish that the sale of cigarettes breaches the specific

MFC provisions of the Exchanges’ contracts. However,

“[t]here is no requirement . . . that the relevant public

disclosures irrefutably prove a case of fraud. It is sufficient

that the ‘publicly disclosed transaction is sufficient to raise

the inference of fraud.’” Id. (quoting Findley, 105 F.3d at

687-88). Here, the Iceland Memo must simply demonstrate

6

The details of the Iceland MWR facility’s operations and its

relationship with the Exchanges and Philip Morris are not clear

from the record. This ambiguity does not impact our analysis,

however, which relies only on the Iceland Memo’s disclosure that

Philip Morris charged the Exchanges higher prices than PMI

charged other overseas customers. See J.A. 74.

11

knowledge “that Philip Morris was not providing the

Exchanges with the best price for cigarettes.” Oliver I, 763

F.3d at 41. The Iceland Memo establishes that PM USA

routinely sold cigarettes at prices lower than those at which

the military could purchase cigarettes, providing “the

government . . . [with] enough information ‘to investigate the

case and to make a decision whether to prosecute’ or . . .

‘could at least have alerted law-enforcement authorities to the

likelihood of wrongdoing.’” Davis, 679 F.3d at 836 (quoting

Springfield Terminal, 14 F.3d at 654). The Iceland Memo

therefore publicly discloses the price differential, and the

transaction alleged here was based upon this publicly

disclosed information.

2.

Oliver also argues that Philip Morris did not publicly

disclose that it falsely certified compliance with the MFC

provisions. Oliver does not dispute that the contracts

containing the MFC provisions were publicly disclosed.

Instead, he contends that because nothing in the MFC

provisions themselves specifically states that Philip Morris’s

compliance was false, the contracts containing the MFC

provisions do not publicly disclose that Philip Morris falsely

certified compliance.

We agree with the District Court that because the MFC

provisions were incorporated by reference into every contract,

“a hypothetical government investigator aware of the price

discrepancies and the MFC provisions would be ‘alerted . . .

to the likelihood’ that the vendor was falsely certifying

compliance with the relevant provisions.”

Oliver, 101 F. Supp. at 126 (quoting Settlemire, 198 F.3d at

918). Oliver’s allegation of fraud is itself based upon the

MFC provisions’ incorporation by reference into each

12

contract with the Exchanges. The allegation “is not based on

[his] direct knowledge of [Philip Morris’s] scienter or lack

thereof. Rather, it is an inference drawn from the available

facts . . . .” Cause of Action v. Chicago Transit Auth., 815

F.3d 267, 281 (7th Cir. 2016). Because the MFC provisions

are incorporated by reference into the Exchanges’ contracts, a

price differential disadvantageous to the government,

combined with a contract term certifying that Philip Morris

would sell cigarettes at the best possible price, would enable

the government to adequately investigate the case and make a

decision whether to prosecute. See Davis, 679 F.3d at 836;

see also Cause of Action, 815 F.3d at 281 (relator’s

allegations were based upon publicly disclosed information

because, inter alia, “the Government was in an identical

position to infer scienter from the publicly disclosed”

documents). Accordingly, Oliver’s allegation of false

compliance is based upon the publicly disclosed MFC

provisions.

B.

Although we conclude that the transactions that give rise

to an inference of fraud were publicly disclosed, the

jurisdictional bar operates only if the public disclosure occurs

through certain channels specified in the statute. The statute

specifies that public disclosure must occur in, inter alia, “a

criminal civil or administrative hearing, in a congressional,

administrative, or Government Account Office report . . . or

from the news media.” 31 U.S.C. § 3730(e)(4)(A). If the

public disclosure did not occur through a statutorily

enumerated channel, the jurisdictional bar does not operate.

See id. Originally, the District Court concluded that the

Iceland Memo was disclosed through two FCA channels: in a

civil hearing, and in the news media. Oliver, 949 F. Supp. 2d

at 245-47. When Philip Morris introduced the MFC

13

provisions on remand, the District Court also concluded that

the MFC provisions were publicly disclosed through

administrative reports and the news media. Oliver, 101 F.

Supp. 3d at 124-25. After reviewing the record, we conclude

that the Iceland Memo was disclosed in a civil hearing and the

MFC provisions were disclosed in an administrative report.

1.

Oliver first argues that the Iceland Memo was not

disclosed in a civil hearing. In Springfield Terminal, we held

that “discovery material, when filed with the court (and not

subject to protective order), is publicly disclosed in a civil

hearing for purposes of § 3740(e)(4)(A)’s jurisdictional bar.”

14 F.3d at 652. We further explained that “[i]t is clear from

statutory context that the term ‘hearing’ was intended to apply

in a broad context of legal proceedings under

§ 3740(e)(4)(A),” and “that for purposes of § 3740(e)(4)(A),

‘hearing’ is roughly synonymous with ‘proceeding.’” Id. We

limited our interpretation to “discovery material . . . which is

actually made public through filing, as opposed to discovery

material which has not been filed with the court and is only

theoretically available upon the public’s request.” Id. We

read the statute to require actuality because “[i]f [discovery

materials] are not yet in the public eye, no rational purpose is

served—and no ‘parasitism’ deterred—by preventing a qui

tam plaintiff from bringing suit based on their contents.” Id.

at 653.

Oliver argues that Springfield Terminal requires materials

to be filed with the court to constitute the type of public

disclosure contemplated by the statute. According to Oliver,

the Iceland Memo was originally published online pursuant to

a settlement agreement that required Philip Morris to include

documents that were produced in litigation. Philip Morris

14

produced the Iceland Memo in subsequent litigation, and it

was placed in this previously-established online database.

When the subsequent litigation ended, “the district court, as

part of its final judgment, ordered [Philip Morris], among

others, to maintain an ‘Internet Document Website’ until

September 1, 2016, which was to include, among other things,

the documents previously placed in its [settlement] database.”

Reply Br. at 25. Based on this timeline, and because the

Iceland Memo was not filed with the court, Oliver contends it

was not publicly disclosed in a civil hearing.

Oliver reads the statute and Springfield Terminal too

narrowly. We noted in Springfield Terminal that the FCA’s

jurisdictional bar reflects “congressional efforts to walk a fine

line between encouraging whistle-blowing and discouraging

opportunistic behavior.” 14 F.3d at 651. Accordingly, we

analyzed the jurisdictional bar “in the context of these twin

goals of rejecting suits which the government is capable of

pursuing itself, while promoting those which the government

is not equipped to bring on its own.” Id. Furthermore, we

explained that “[i]t is clear from statutory context that the

term ‘hearing’ was intended to apply in a broad context of

legal proceedings under § 3730(e)(4)(A).” Id. at 652. Given

the goals of the statute and the “broad context” of a civil

hearing, materials that a court order mandated be publicly

accessible, and were in fact made publicly accessible as a

result of that order, constitute materials disclosed in a civil

hearing for purposes of the FCA’s jurisdictional bar.

Although Oliver acknowledges that the Iceland Memo

was publicly accessible via the internet, he contends that the

history of the Iceland Memo’s publication undermines the

notion that it was “actually” publicly available. The database

contains 4,480,485 documents from an additional 421 cases.

Reply Br. at 26. Because Springfield Terminal distinguished

15

between “theoretically available” and “actually available,”

Oliver contends that the breadth of the database shows that

the Iceland Memo was only theoretically available. We

disagree. Although Oliver couches his argument in terms of

whether the documents are “actually available,” he effectively

argues that public disclosure should turn on whether the

documents are reasonably likely to be discovered. This is not

the standard. The Iceland Memo was in fact actually

available on a court-ordered public website. Because they

were made available on the website in a civil hearing, they

were “actually” made available in accordance with

Springfield Terminal’s rationale. 7

2.

Oliver also argues that the MFC provisions were not

publicly disclosed in an administrative report. Because the

provisions did not “give information” but were the

“information itself,” Oliver contends that the MFC provisions

could not constitute a report. Appellant Br. at 42-44.

In Schindler Elevator Corp. v. United States ex rel. Kirk,

the Supreme Court explained that the “ordinary meaning” of

“report is something that gives information or a notification,

or an official or formal statement of facts or proceedings.”

563 U.S. 401, 407 (2011) (internal citation, quotation marks,

and alterations omitted). The Court reasoned that “[t]his

broad ordinary meaning of ‘report’ is consistent with the

generally broad scope of the FCA’s public disclosure bar.”

Id. In this case, the website provides information on how to

contract with the Exchanges, and it attaches, via hyperlink,

7

Because we hold that the Iceland Memo was publicly disclosed in

a civil hearing, we need not reach whether it was also disclosed

from the news media.

16

the terms and conditions of doing so. J.A. 349. The website

and linked PDF file clearly “give[] information or a

notification, or an official or formal statement of facts,”

Schindler, 563 U.S. at 407 (internal citation, quotation marks,

and alterations omitted). Considering Schindler’s broad

definition of “report,” the website and the MFC provisions

were disclosed in an administrative report, triggering the

jurisdictional bar. 8

C.

Although we conclude that the transactions Oliver alleges

were publicly disclosed through statutorily prescribed

channels, we would still have jurisdiction if Oliver qualifies

as an “original source.” 31 U.S.C. § 3730(e)(4)(B). An

original source must have “direct and independent knowledge

of the information on which the allegations are based.” Id.

“‘Direct’ signifies ‘marked by absence of an intervening

agency.’” Springfield Terminal, 14 F.3d at 656 (quoting

Houck v. Folding Carton Admin. Comm., 881 F.2d 494, 505

(7th Cir. 1989)). In other words, “[i]n order to be ‘direct,’ the

information must be first-hand knowledge.” Findley, 105

F.3d at 690 (emphasis added). “‘Independent knowledge’ is

knowledge that is not itself dependent on public disclosure.”

Springfield Terminal, 14 F.3d at 656; see also Findley, 105

F.3d at 690 (“[A] person who learns of fraud from a public

disclosure can never be an ‘original source.’”). The relator

must “possess direct and independent knowledge of the

‘information’ underlying the allegation, rather than direct and

independent knowledge of the ‘transaction’ itself.”

Springfield Terminal, 14 F.3d at 656; see also Rockwell Int’l

8

Once again, because we conclude that the MFC provisions were

publicly disclosed in an administrative report, we need not reach

whether they were also disclosed from the news media.

17

Corp., 549 U.S. at 473 (“[T]he phrase ‘information on which

the allegations are based’ refers to the relator’s allegations

and not the publicly disclosed allegations.”). Notably, this is

distinct from the knowledge of the “combination of X and Y”

and rather “refers to direct and independent knowledge of any

essential element of the underlying fraud transaction.”

Springfield Terminal, 14 F.3d at 657. In other words, if

Oliver has direct and independent knowledge of information

underlying X or Y, he qualifies as an original source. 9

Here, Oliver contends that he is an original source for

information underlying the X term: the fact that Philip Morris

was selling cigarettes to other purchasers at prices lower than

that which it sold cigarettes to the Exchanges. On remand,

Oliver submitted a sworn declaration outlining how he came

to possess the information underlying his allegation of fraud.

J.A. 448-57. Oliver explained that his company, Medallion,

sold cigarettes to military exchanges located in the United

States. Oliver spoke with Tim Maloney, the tobacco category

buyer for NEXCOM, about overseas pricing. Maloney

informed Oliver that the overseas price was the domestic

price less the amount of federal excise taxes. Oliver informed

Maloney that he “believed” two additional domestic

surcharges would not apply to overseas pricing, which was

based on his status as a market participant and his knowledge

of the 1998 Master Settlement Agreement (“MSA”) between

tobacco companies and attorneys general of 46 states.

Maloney revealed that other overseas suppliers, including

9

Philip Morris argues that Oliver was required to plead original

source allegations in his operative complaint, and having failed to

do so, he cannot claim original source status now. We need not

reach this issue because we conclude the statements in Oliver’s

declaration viewed in conjunction with the allegations of the

complaint do not establish that Oliver is an original source under

the FCA.

18

Philip Morris, did not deduct these additional surcharges.

Based on Maloney’s response, Oliver investigated whether

the additional surcharges were not applicable overseas,

contacting the National Association of Attorneys General’s

(“NAAG”) Tobacco Control Group, which administered the

settlement agreement imposing the additional surcharges.

NAAG and additional “industry contacts, including duty-free

operators and overseas distributors” confirmed that the

surcharges did not apply overseas. Oliver Decl. ¶ 7, J.A. 451.

One of his contacts was Kenny Hasegawa, a co-owner of a

duty-free business in Samoa which was in a market served by

the Exchanges, who confirmed that the cigarettes sold to the

Exchanges were identical to those sold to other overseas

outlets. As a result, Oliver argues that he possesses direct

knowledge of two kinds of information underlying Philip

Morris’s price differential: 1) his knowledge of the industry

practice based on the terms of the MSA, and 2) the

information he gained from his investigation into Philip

Morris’s overseas sales practices. We disagree.

The allegations in Oliver’s complaint and the statements

made in his declaration fail to demonstrate that Oliver

qualifies as an original source. Oliver’s knowledge of the

information underlying the allegation of fraud in the

complaint is not “direct” because Oliver possessed no first-

hand knowledge of Philip Morris’s unlawful price differential,

but rather gained all his knowledge second-hand. Oliver

argues that “the fact that a relator undertakes investigatory

efforts does not prevent the information derived from that

investigation from being ‘direct.’” Appellant Br. at 57-58.

However, it is not Oliver’s investigation but his lack of first-

hand knowledge prompting his investigation that precludes

his original source status.

19

Our Circuit has found a relator who conducts an

investigation to be an “original source,” but only where the

relator possessed some direct knowledge of the conduct

implicated by the fraud. For example, in Springfield

Terminal, we held that a relator who conducted investigatory

efforts was an “original source” under § 3730(e)(4)(B).

14 F.3d at 657. There, the relator had participated in a prior

federal action related to an arbitration dispute under the

Railway Labor Act. Id. at 647. In seeking to set aside the

arbitration award, the relator obtained the arbitrators’ pay

vouchers during discovery and realized that the arbitrators

billed the government for “activities unrelated to the

arbitration proceedings.” Id. The relator thereafter filed a qui

tam complaint, alleging that the arbitrator had billed the

government for days he had not worked on the proceeding.

Id. at 648. The relator’s “suspicions first arose upon

inspection of [the] pay vouchers” because, “[b]ased upon its

own involvement in the arbitration,” the relator knew that the

arbitrator had no work to perform on days he billed the

government. Id. The relator “then conducted further

investigation on its own” by calling numbers listed on the

arbitrator’s telephone records, which revealed that the

arbitrator had been out of the country for personal reasons for

which he had billed the government. Id.

We held that it was “beyond question” that the relator

was an original source. Id. at 657. “[T]he pay vouchers and

phone records did not themselves suffice to indicate fraud.”

Id. As a result, the relator “bridged the gap by its own efforts

and experience, which in th[at] case included personal

knowledge of the arbitration proceedings and interviews with

individuals and businesses identified in the telephone

records.” Id. (emphasis added). The relator “started with

innocuous public information; it completed the equation with

information independent of any preexisting public

20

disclosure.” Id. The relator’s personal knowledge of the

arbitration proceedings shows that “a relator need not have

first-hand knowledge of all of the information supporting his

allegations, but he must have at least some first-hand

knowledge of that information.” U.S. ex rel. Antoon v.

Cleveland Clinic Found., 788 F.3d 605, 621 (6th Cir. 2015)

(Gibbons, J., concurring) (citation omitted).

Springfield Terminal thus demonstrates that in order to

have “direct” knowledge for purposes of the original source

exception, a relator must have some first-hand knowledge that

would lead him to believe that a fraud had been committed.

Cases from other circuits confirm this approach. For

example, in Minnesota Association of Nurse Anesthetists v.

Allina Health Systems Corp., the Eighth Circuit held that the

relator organization’s members had direct knowledge because

they witnessed the fraudulent conduct of filling out billing

forms with misleading information. 276 F.3d 1032, 1050 (8th

Cir. 2002). The members also had direct knowledge of the

“true state of facts” contradicting the fraud because they had

witnessed the actual conduct that the fraud misrepresented.

Id. Likewise, in Cooper v. Blue Cross & Blue Shield, the

relator’s own insurance claims prompted him to conduct

research that led to allegations of Medicare fraud against his

insurance company. 19 F.3d 562, 564-65 (11th Cir. 1994)

(per curiam). The Eleventh Circuit held that the jurisdictional

bar did not apply because the relator had direct knowledge of

the fraud through “years of his own claims processing,

research, and correspondence with members of Congress and

[the federal agency].” Id. at 568. Finally, in United States ex

rel. Bahrani v. Conagra, Inc., the Tenth Circuit held that a

relator’s affidavit “stating that he personally observed” the

fraudulent conduct precluded summary judgment on whether

he qualified as an original source. 465 F.3d 1189, 1209 (10th

Cir. 2006); see also U.S. ex rel. Bahrani v. Conagra, Inc., 624

21

F.3d 1275, 1287-88 (10th Cir. 2010) (relator “had to establish

he was ‘personally aware of at least one instance of [a]

fraudulent’ certificate change” (quoting Glaser v. Wound

Care Consultants, Inc., 570 F.3d 907, 921 (7th Cir. 2009)));

U.S. ex rel. Lam v. Tenet Healthcare Corp., 287 F. App’x

396, 400 (5th Cir. 2008) (“Relators found to have direct and

independent knowledge are those who actually viewed source

documents or viewed first hand the fraudulent activity that is

the basis for their qui tam suit.”). But see Antoon, 788 F.3d at

618 (“[T]here is nothing in the statutory text that limits ‘direct

knowledge’ to first-hand knowledge.”).

Similarly, our sister circuits have routinely held that

relators do not qualify for the original source exemption

where the relator learns of the fraudulent activity from a third

party. In Glaser v. Wound Care Consultants, Inc., the relator

alleged that a medical facility committed Medicaid fraud

when it billed Medicaid for services performed by a doctor

that were actually performed by a nurse practitioner or

physician’s assistant, which would have resulted in a lower

rate. 570 F.3d at 911-12. The Seventh Circuit concluded the

relator was not an original source despite her knowledge that

a nurse practitioner treated her because “the fraud alleged

pertain[ed] to the billing, not the treatment,” and “she had no

knowledge whatsoever of the fraudulent conduct before

hearing from an attorney.” Id. at 921.

In United States ex rel. Ondis v. City of Woonsocket, in

response to the mayor’s statements that he would do away

with all section 8 housing, the relator investigated whether the

city illegally received federal grants from the Department of

Housing and Urban Development. 587 F.3d 49, 52 (1st Cir.

2009). The relator alleged fraud based on “specific instances

. . . previously disclosed in daily newspapers of general

circulation” or otherwise “unarguably . . . from the public

22

domain.” Id. The First Circuit concluded that the relator

lacked direct knowledge because “[k]nowledge that is based

on research into public records, review of publicly disclosed

materials, or some combination of these techniques is not

direct.” Id. at 59.

Finally, the Fourth Circuit also found such mediated

knowledge insufficient for original source status in United

States ex rel. Grayson v. Advanced Management Technology,

Inc., 221 F.3d 580 (4th Cir. 2000). In Grayson, the relators

were lawyers who had represented a company in a dispute

about the award of a government contract. Id. at 581. In the

course of the representation, the relators learned that the

company that had been awarded the contract misrepresented

the makeup of the personnel who would perform the contract.

Id. at 581-82. Relators filed a qui tam action, alleging that

such misrepresentations violated the FCA. Id. at 582. The

Fourth Circuit concluded that relators were not an original

source because they “at best verified” the information

contained in an administrative protest. Id. at 583.

With these principles in mind, we “look to the factual

subtleties of the case before [us] and attempt to strike a

balance between those individuals who, with no details

regarding its whereabouts, simply stumble upon a seemingly

lucrative nugget and those actually involved in the process of

unearthing important information about a false or fraudulent

claim.” U.S. ex rel. Laird v. Lockheed Martin Eng’g & Sci.

Servs. Co., 336 F.3d 346, 356 (5th Cir. 2003), abrogated on

other grounds by Rockwell Int’l Corp., 549 U.S. at 472. Here,

Oliver possesses no direct knowledge of information that

prompted his investigation into Philip Morris. Unlike the

litigants in Springfield Terminal, who possessed first-hand

knowledge of the days on which the arbitrator conducted

proceedings, Oliver does not allege any direct knowledge of

23

transactions involving Philip Morris. Oliver does not allege

that he worked for Philip Morris, sold cigarettes overseas on

behalf of Philip Morris, or purchased cigarettes overseas from

Philip Morris. He learned of Philip Morris’s sales practices

from Maloney, a third party. Maloney’s knowledge prompted

Oliver to investigate whether the surcharges applied. Because

Oliver stumbled upon Philip Morris’s overseas pricing when a

third party revealed the pricing to him, he does not possess

direct information underlying Philip Morris’s unlawful price

differential.

Furthermore, neither Oliver’s background information

nor the knowledge he gained through his investigation

constitutes direct information sufficient to confer original

source status. “Courts must be mindful of suits based only on

‘secondhand information, speculation, background

information or collateral research.’” U.S. ex rel. Atkinson v.

PA. Shipbuilding Co., 473 F.3d 506, 523 (3d Cir. 2007)

(quoting U.S. ex rel. Hafter D.O. v. Spectrum Emergency

Care, Inc., 190 F.3d 1156, 1162-63 (10th Cir. 1999)). The

FCA was intended to encourage “those ‘who are either close

observers or otherwise involved in the fraudulent activity’ to

come forward.” U.S. ex rel. Barth v. Ridgedale Elec., Inc., 44

F.3d 699, 703-04 (8th Cir. 1995) (quoting S. Rep. No. 99-345,

at 4 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5269).

Recognizing Oliver’s background knowledge of the MSA and

his contact with NAAG and Hasegawa as direct would

undermine this intent, as Oliver was not a close observer of

any of these facts. Cf. Atkinson, 473 F.3d at 523 (finding

relator was not an original source because “[a]ny member of

the public could have” checked the public records underlying

the qui tam suit). Accordingly, because Oliver lacks any

direct information about the price differential Philip Morris

charged the Exchanges, he is not an original source.

24

***

Because the transactions creating an inference of fraud

were publicly disclosed and Oliver is not an original source,

we affirm the judgment of the District Court.

So ordered.