D.C. Circuit Upholds Decision Limiting Relator Eligibility in False Claims Act Suits Alleging Antidumping Duty Evasion

News & Insights
Dec 9, 2014

Last week, the Court of Appeals for the District of Columbia Circuit upheld a district court’s of a False Claims Act (FCA) lawsuit alleging that several importers had falsely declared Chinese-origin pencils to be products of other countries in order to evade antidumping duties.

The plaintiff in the suit, an anonymous relator who claimed to be a “pencil-industry insider,” learned of the evasion scheme through reviews of ship manifest data available from an online database made available by PIERS Global Intelligence Solutions.  Based on these data, the plaintiff investigated the claimed foreign producers of pencils in Indonesia, Hong Kong, and Vietnam and “[w]ith the help of pencil-industry informants” determined that these suppliers did not manufacture pencils for the U.S. market.

The U.S. Department of Justice declined to intervene in plaintiff’s lawsuit and the district court subsequently dismissed the case for a failure to state a viable FCA claim.  Explaining its dismissal, the federal district court for the District of Columbia had found that the essential elements underlying the allegations of false claims were “based on publicly disclosed information,” as ship manifest data was publicly available.  Further, the lower court noted that descriptions of unique identifiers of Chinese-origin pencils had been previously published by the U.S. International Trade Commission (ITC) in the course of the trade litigation.

The plaintiff appealed to D.C. Circuit, arguing that he met the “original-source” jurisdictional requirement of the FCA.  In responding to these arguments, the Circuit Court reviewed existing precedent, explaining that FCA suits were barred only where “both essential elements of the fraud – the false statement and the true facts – had been publicly disclosed” (emphasis in original).

Splitting out these two elements, the Court noted that there was no dispute that “the false statement” component was based on publicly disclosed information:

[T]he parties agree that . . . the alleged misrepresentation[] is defendants’ declarations to Customs . . . .  Relator, moreover, concedes that this information was publicly disclosed in the PIERS database.

Thus, the only issue before the Court on appeal was whether the fact that the pencils were not Chinese in origin had similarly been publicly disclosed.  In this respect, the plaintiff conceded that information regarding some of the unique characteristics of Chinese-origin pencils had been published in ITC reports, but argued that he had identified additional characteristics unmentioned in these publications.  The Court observed that any additional information compiled by the relator was not necessarily relevant to the fundamental legal question presented:

[O]ur inquiry focuses not on the additional incriminating information a relator supplies, but instead on whether “the quantum of information already in the public sphere” was sufficient to “set government investigators on the trail of fraud.” Here, the Court observed:  “answering that question is easy.”  Because the plaintiff had alleged that the unique features of Chinese-origin pencils were “well known,” this information was sufficient to enable the government to adequately investigate the case and determine whether to prosecute.  Accordingly, “[i]nstead of pleading facts that establish federal jurisdiction, Relator has thus pled himself out of court.”

The Court additionally opined that the ITC reports had identified three of the four named defendants as possible importers of Chinese-origin pencils.  “Combined with defendants’ declarations in the PIERS database that their pencils were made only in, say, Indonesia or Hong Kong, that information could likewise” have notified the federal government of potential wrongdoing.

The Court rejected the plaintiff’s contention that identifying Chinese-origin pencils through inspection established a non-public source of information.  To conclude otherwise, according to the Court, would invite lawsuits from parties seeking untold riches:

Under Relator’s theory, however, anyone armed with the information in the ITC reports could troll the aisles of any office-supply store for pencils with loose ferrules or off-center leads.  The would-be plaintiff could then determine whether the retailer had paid the required antidumping duties by reference to other public information, and if it had not, then voilà, the plaintiff would be entitled to millions of dollars in qui tam compensation.  But these sorts of lawsuits, brought by “opportunistic plaintiffs who have no significant information to contribute of their own,” are precisely the kind the public disclosure bar seeks to prevent.

The Court also declined to consider whether the plaintiff qualified as an original source of the information because the argument had not been raised before the lower court.