D.C. Circuit Affirms Dismissal Under Public Disclosure Bar

Posted by Nicole Ryan and Sarah Hemmendinger

In a December 2, 2014 opinion in United States ex rel. Doe v. Staples, Inc., No. 13-7071 (D.C. Cir. Dec. 2, 2014), the D.C. Circuit affirmed the dismissal of a relator’s FCA action under the public disclosure bar because the facts underlying the claim were already in the public domain through an online database and administrative reports.

This qui tam action arose out of the alleged importation of Chinese-made pencils to the United States. An anonymous relator, “a self-styled pencil-industry insider,” alleged that Staples, OfficeMax, Target, and Industries for the Blind made false statements to U.S. Customs in order to avoid paying antidumping duties imposed on Chinese-made pencils. The relator claimed that the defendants knowingly purchased Chinese-made pencils yet falsely declared to Customs that the pencils originated in countries other than China.

The government declined to intervene, and the defendants moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim. The district court concluded that the relator’s FCA claim was based on publicly disclosed information and that he failed to show that he qualified as an original source of the information. Thus, it dismissed the case for lack of subject matter jurisdiction. The D.C. Circuit affirmed.

The court began by reviewing the principles it outlined in United States ex rel. Springfield Terminal Railway v. Quinn, 14 F.3d 645 (D.C. Cir. 1994). The court reiterated that where both elements of a fraudulent transaction – “the misrepresentation and the truth of the matter” – are already in the public domain, the public disclosure bar applies. This is the case even if a relator sets forth “additional evidence incriminating the defendant.” Here, both parties agreed that the Customs declarations were the alleged misrepresentations and that these statements were publicly disclosed in an online database. The appeal therefore turned on whether “the truth of the matter” – the question of whether the pencils “actually were made in China” – was also in the public domain. The D.C. Circuit agreed with the defendants on this point, finding that public reports by the International Trade Commission (“ITC”), which constituted administrative reports under the FCA, had already described many of the distinguishing physical characteristics of Chinese pencils (such as off-center leads and inferior finishing), which “form[ed] the basis of Relator’s charge that the pencils were made in China.”

The court rejected the relator’s argument that the public disclosure bar did not apply because his complaint identified distinctive features of Chinese-made pencils in addition to those listed by the ITC. The court explained that the information on the characteristics of Chinese-made pencils already in the public sphere was sufficient to “set government investigators on the trail of fraud.” Likewise, the court rejected the relator’s argument that his allegations concerning the pencils’ telltale characteristics were intended to show only the element of knowledge on the part of the defendants, not that the pencils were in fact made in China. The court held that if these publicly-known features of Chinese pencils were sufficient to put the defendants on notice of the pencils’ origins, they were also “sufficient to enable the government adequately to investigate the case and to make a decision whether to prosecute.” The court also emphasized that the ITC reports stated that U.S. pencil makers had identified three of the four defendants – Staples, Target, and OfficeMax – as “possible” importers of Chinese pencils, concluding that this information, combined with the defendants’ declarations that their pencils were made only in countries other than China, likewise could “have alerted law-enforcement authorities to the likelihood of wrongdoing.”

Therefore, the court held, the relator’s suit was “based upon” publicly disclosed “allegations or transactions” within the meaning of the FCA’s public disclosure bar. The court concluded that it did not matter whether the ITC had conducted a physical inspection of the defendants’ pencils: the relator’s allegations stemmed from a conclusion about the pencils’ origins “based on their physical characteristics,” which were already publicly described through the ITC reports.

Finally, the court held that the relator had waived the argument that he qualified as an original source of the information because he did not raise the argument below.

A copy of the court’s decision can be found here.