In United States ex rel Oliver v. Phillip
Morris USA, Inc., No. 15-7049, 2016 WL 3408023 (D.C.
Cir. June 21, 2016), the appellate court in the influential
District of Columbia Circuit
adopted an expansive reading of the FCA's public
disclosure bar. Briefly stated, the public disclosure
bar provides that a lawsuit filed by a private whistleblower can be
dismissed by the courts if the allegations or transactions at issue
in the case had already been publicly disclosed. This
provision is a very common ground for defendants to have
whistleblower suits dismissed, particularly if the courts use a
broad reading of what can constitute a disabling public
Relator Anthony Oliver filed a qui tam suit against
Phillip Morris USA alleging that the company breached obligations
in its sales to the government when the company sold cigarettes to
U.S. Military Exchanges at prices higher than prices at which
Phillip Morris sold cigarettes to other customers. Oliver alleged
that this conduct violated the False Claims Act because Phillip
Morris falsely certified compliance with so-called "most favored
customer" ("MFC") provisions that are incorporated by reference
into government contracts. The trial court granted the
company's motion to dismiss the case based on defendant's arguments
that the conduct had been publicly disclosed prior to relator's
filing. In its most recent ruling, the Court of Appeals upheld the
trial court's dismissal of the case.
Interestingly, this same appeals court had previously held that
Philip Morris had not been able to show public disclosure.
U.S. ex rel. Oliver v. Philip Morris
(Oliver I), 763 F.3d 36, 44 (D.C. Cir. 2014). In
Oliver I, the court held that the FCA's public
disclosure bar was not triggered because the company had not shown
that "its allegedly false certifications of compliance with [the
MFC] provisions were in the public domain." Id. at 41.
The court also held that a 1999 inter-office memorandum discussing
concerns about cigarette pricing at a United States naval station
in Iceland (the "Iceland Memo") did not publicly disclose the
pertinent facts. Id. at 43. The case
was remanded to the district court for further proceedings.
Id. at 44.
On remand, Philip Morris successfully argued that the FCA's
public disclosure bar was triggered because the MFC provisions were
published online prior to the filing of Oliver's complaint. Philip
Morris submitted archived webpages to show that the MFC provisions
were publicly disclosed in an "administrative report" and in the
"news media" and it also persuaded the judge that the Iceland Memo
adequately revealed that the sales had been at prices higher than
sales to other customers. U.S. ex rel. Oliver v. Philip
Morris USA, Inc., 101 F.Supp.3d 111, 123-27 (D.D.C.
In its recent ruling, the Court of Appeals
for the District of Columbia Circuit held that although the
fraud itself was not publicly disclosed - that is, there was no
published report or news story alleging that the company had
violated the pricing provisions of the contract -- the
"transactions" or "elements" that had been disclosed gave rise to
an inference that fraud had taken place.
The court relied on a well-established rubric initially set
forth in U.S. ex rel. Springfield Terminal Co. v
Quinn, 14 F.3d 645 (D.C. Cir. 1994): "[I]f X+Y=Z,
Z represents the allegation of fraud and X [the
true state of facts] and Y [the misrepresented, or false, state of
facts] 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." In this Philip Morris decision, the court held
that "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 certified that it complied with
the Most Favored Customer provisions (Y)," which "gives rise to the
conclusion Philip Morris committed fraud (Z)." 2016 WL
3408023, at *5.
The ruling was based on two separate public disclosures (which
courts routinely consider in tandem): 1) The "Iceland Memo,"
that disclosed that Phillip Morris charged U.S. Military Exchanges
higher prices for cigarettes than it charged other customers and 2)
contracts with the Military Exchanges that incorporated the most
favored customer ("MFC") provisions, which could be accessed on a
public website. Looking at the two disclosures together, the
court held that "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." Id.
According to the court, this was sufficient to dismiss the
complaint under the public disclosure bar.
Significantly, and very discouraging for potential
whistleblowers, the court held that the Iceland Memo was
"disclosed" in a civil hearing, even though the Memo was not
actually filed with any court. As to the most favored
customer provisions, the court held that these were disclosed in an
"administrative report," broadly construed to include a hyperlink
to the Military Exchange website that identified those
The court doggedly dismissed all of Relator's compelling
arguments as to why the Iceland Memo should not be deemed a public
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 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…." Th[at] database contains 4,480,485
documents from an additional 421 cases.
2016 WL 3408023, at *5. Despite this strong showing that the
Iceland Memo was "disclosed" only in the broadest of senses, in
that it was theoretically available on an enormous database focused
on other topics, the court found that 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." Id.
Additionally, the court rejected Relator's argument that the
information in the Iceland Memo was stale, holding that "[a]lthough
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." 2016 WL
3408023, at *5 (citing U.S. ex rel. Settlemire v. District of
Columbia, 198 F.3d 913, 919 (D.C. Cir. 1999
The court also rejected Relator's arguments that there was no
public disclosure of Philip Morris' false certifications of
compliance with the MFC provisions for purposes of the FCA.
Relator's argument, in essence, was that although the contracts
containing the MFC provisions were publicly available, nothing
contained therein indicated that Philip Morris had falsely
certified its compliance. The court rejected any argument
that there was not a disabling public disclosure on this
point: "Because the MFC provisions are incorporated by
reference into the Exchanges' contracts [which can be viewed
online], 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." United States ex rel. Oliver v.
Philip Morris USA Inc., 2016 WL 3408023, at *5.
This is a discouraging case in that it allows a company to
defeat a FCA suit filed by a whistleblower based on the fortuitous
posting of an internal memo on an enormous public website
containing over 4 million documents, some years earlier, for
different purposes. Such an expansive reading of the public
disclosure bar is ill-suited to the FCA's clear purpose of
encouraging whistleblowers to come forward with evidence of fraud
against the federal government. Perhaps the "escape valve"
from the public disclosure bar - the original source rule - would
have been sufficient in its current iteration to save this lawsuit,
but the court rejected that argument under the original source
requirements that were in place at the time of this case.
Regardless, though, the expansive reading of public disclosure
provides far too easy an escape for cheating defendants. If
the standard is whether a government investigator
looking for a particular type of fraud by a specific
defendant could possibly have found it, we will lose
the advantage of having people come forward to alert the government
as to where it should be looking.
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