Legal Case Summary

United States Exwell. I'm a I'm a moda versus niche and I guess we have a cast here. Mr. Resta you for here from you first

. May I please the court, Martin Estatullio for the appellant Michael Almada. Your honor we're appealing your honors we're appealing to aspects of the lower courts decision. One of them being that the later the relators are the gations are not based on public disclosures which the lower court found and the second one has to do with the mill for admission of the second amended complaint

. So your honor first of all the first amended complaint in this action was filed under seal in June 2007. That was the first time that the current defendants were named in this action and at that time the applicable statute regarding public disclosures was 3730 E4. It basically said that no no courts have jurisdiction

. There is this action based upon the public disclosures of the allegations or transactions in a criminal civil or administrative hearing in a congressional administrative government counseling. Accounting office report hearing audit or from news media here will be focusing on news media unless the action is brought by the attorney general or the person bringing the action is an original source. Just last month this court applied this same 2006 version of the False Claims Act when evaluating the case filed US X-Roll Ross told their verses on the care ink

. It was provided to your to your honors by appellees. So are you conceding that it's the 2006 version of a statute that applies because your brief seemed to have this for this matter and for these purposes your honor it doesn't really matter the 2006 as far as the public disclosure allegations for if we're talking about later when defining knowingly the 2009 version is applicable. I we would argue that the 2009 app version is applicable here

. My point is under no scenario was they are public disclosures as to the box manufacturers and if there's no public disclosure it's the same standard whether it be 2006 or 2009. So for example as regards the box manufacturers the appellant the plaintiff had three allegations. One of them was that the defendants in this case were invoicing for raw sheets when they were actually providing complete or nearly complete boxes

. Other than this action to date there has never been a public disclosure about that. So there can't be a public this they can't get they can't be a failure to have subject matter jurisdiction for public for public disclosure whether there's no public disclosure. Second allegation in plaintiffs complaint was that the defendants were well I thought in your brief that you you never really argue that the allegations and the complaint were not based on a public disclosure but instead you're focusing on original source

. No that was that was sort of the backup there were three allegations. The backup was so first let's let's talk about the panoply of defendants. There are five defendants four box manufacturers one is regarding niche so for the three box manufacturer for the four box manufacturers there were three allegations

. Two of them have never been publicly disclosed. One of them it's on defense. There's to that in a second for niche there were public discosures and that's where we're arguing that the plaintiff the related was the original source

. Now the defendants here had their argument with niche because there were numerous stories about niche and so that sort of tip the the balance of the argument one way versus the other. But the reality is that when taken into account and you look at all the allegations against all of the defendants the original source as far as him being the source of the of the stories is only one portion of it and he was the source and he was there for the original source but I'd like to sort of lay out the groundwork for the whole scheme so that everybody's on the same page. Where does the requirement of notifying the government about these violations come into play? Did he ever notify the government about it? He did he actually tried to notify the government three times so the first time niche which is a quasi-government office and he understood to be the government he called up niche and said hey there's there's there's there's for I'd be in committed at NCED so niche up until that point he didn't know that niche was in on the scheme so niche rebuffed him and then complained back to NCED saying that you know this guy's causing trouble for you subsequent to that there are but that's not disclosed that's not telling the government that well at that point he understood niche to be the government then the next step may have been he was wrong about that obviously okay then the next step is he told the United States Post Office again another agency which he understood to be the government and finally when all that failed he then spoke to the FBI so on three occasions he actually spoke to the government and no one will deny that the FBI at least is the government and that was prior to filing the complaint so and by the way prior to these public disclosures that are alleged so the third by the way scheme that the box manufacturers alleged that there was some public disclosure is one story all of one story cited in it's in the the joint appeal record as a 205 to 207 the story focuses actually the story focuses on NCED and about how it forms out businesses it mentions only three of the four defendants it only mentions possibly one scheme which is them stamping the boxes with NCED's box manufacturing certificate but it doesn't draw a conclusion one way or the other it specifically leaves out where a house or which is pointing to us the biggest culprit of these and so it that one story which by the way I'll show you in a second he was the original source for cannot be the basis for dismissing all three allegations and subject manager's fiction against all defendants for all three allegations so as regards that one story by the way it was the Oregonian was the first newspaper to arrive in El Paso they were actually drafting a they were investigating a story about executive excessive executive compensation and not for profits various not for profits across the country not specifically NCED not specifically El Paso in fact the story is site excessive compensation for not for profits in Portland Tennessee Texas being one of them as well how would that benefit your plan well let's get so here's what happens what these papers disclose well they they they didn't that's the whole point so what happens is he went by the time the Oregonian arrived in El Paso in 2005 it had been already one year at about one year they arrived in October 2005 and my client was terminated from his employment in July 2004 it already been one year since he discovered the fraud at NCED he told the box manufacturers in particular Green Bay and Smurf its stone hey there's a fraud going on there don't do business with them it had been one year since he complained to niche it had been one year since he complained to the US post office saying hey these guys are committing a fraud so the Oregonian arrives now the Oregonian is talking about exact excessive executive pay in not for profit institutions when they arrive they meet up with with the realtor who says okay listen I can put you in contact with folks that'll talk about that moreover by the way I think the real story is that they're not even complying with the J-Wod program you should check that out the fact is and by the way you should check it out because I think niche is in on it so subsequent to that point parting from that point is when the the Oregonian begins to publish a series of stories now no longer focused on the five or six executives throughout the country that works that were receiving excessive executive pay now of a sudden because they were they received the information from this guy they're now focusing on ncd while that's happening the realtor calls up his friend which is the the local reporter and says hey listen the Oregonian was here a couple of weeks ago they're gonna write a story about ncd I think it's I think it should be reported on by a local newspaper and so David Crowder the latest friend calls it comes in and then he starts publishing stories about ncd and about their violation so to put it back in context one prior to him filing the complaint there was only one public disclosure at best against the box manufacturers secondly to the extent that there was a public disclosure he was the one who informed the Oregonian and the El Paso times about it so the same goes the the timeline begins from there it's the same for niche he put the he uncovered the fraud for all of these folks now so here we go so second you call it a fraud yes I guess the fraud you're talking about is that they are reporting to comply with a program when in fact they're not the fraud is that they're actively certifying to the United States government that they comply with a program that allows them to receive no bid contracts if they comply with the criteria yes that's part of the j-walk program that's exactly right and certifications are done what Sun and you'll hear I assuming analy by so by ncd and then signed off by nish and they file that to say they're complying with the program they file that to say they're complying with the program now it was there any discovery of a false statement made by the company here in connection with getting payment from the government for these five I'm sort of the statement the statement is the annual certification so the answer is so there's twofold so that's not a false claim that's a certification to participate in a program well false claim would have to be the bill that goes to the government so both so so in all I want to focus on that okay and well then this goes back to your discussion on materiality which you guys discussed in the in the previous case so there's two things so one for every bill that ncd submits and for every box did they ever saw any bill he did see bills and do you see a false statement on those bills yeah I mean that's how he knows that they were building for raw sheets when in fact they were getting full boxes but he was only there for six months and a lot of this activity occurred well some of the activity let me finish sorry most of necessarily occurred after he left how could he possibly have seen bills or spoken to people after the fact so so let's go back to that point so the reality is first when you say he was only there for six months this gentleman had been in the box manufacturing industry for 20 years so it wasn't like you know he did not know what that box manufacturing industry was when he came on to ncd ncd he came on as vice president in charge of the cargated division there's only two divisions at ncd when he arrived so there's garments and there's cargated division as part of that he was part of the little handful of management team that oversaw all of the of the services that ncd provided while he was there by the way we're house or was supplying boxes to ncd international paper say an Antonio was supplying boxes to ncd because the plant manager at El Paso refused to provide the fraudulent services that Bob Jones desired and cd and mish was always certifying ncd smurfed stone and green bay were invited to the plant while he was there because he was trying to increase production and he wanted their their input on how he could do that best so after he left and by the way when he came over to ncd he brought his team from smurfed stone so it wasn't like you know he didn't have friends there that he was talking to and so the fact is that after he left he continued to talk to these people so when green bay by the way he approached green bay subsequently leaving and says hey listen they're committing a fraud there I want to start a legitimate business what happens is green bay reports back to ncd and see these starts making boxes with green bay and when he finds out he's already got all the pieces of the puzzle green bay had been there he had been there he knows there's a fraud he tells green bay about the fraud all that needs to happen is that one of his friends says hey by the way Mike green Bay is now making boxes he calls up green Bay at Wisconsin by the way the vice president of green Bay at Wisconsin doesn't just take a call from the janitor of of of ncd so he he is this person in the industry he calls up green Bay in Wisconsin and says hey your guys are committing a fraud by making these boxes that was ignored smurf its stone again he finds out he worked at smurf its stone for 20 years he was part of this president's club he knew everybody at smurf its stone when he finds out smurf its stone is making these boxes he goes to the guys at the plan says you know manny manny louerra you're making boxes oh listen Bob Jones has contacts in Washington don't worry about it we got this taken care of so they too chose to ignore it so I think you know the the allegation that these things happen after he was gone and that somehow you know about it he was already in the mix there was no way for that to happen my red light yeah yeah you're right like you do have some time we'll see you back then I guess we'll hear first from mr

. weaver may please the court I'm Robert weaver I am counsel for smurf its stone container and I've been asked to speak on behalf of all the defendants to the issue of whether or not the plaintiff in this case has adequately established his credentials as a original source of the that which was publicly disclosed and it is found in his complaint and mr. Fitzgerald will speak to following me to the question of whether or not the requirements of rule 9 and rule 12 have been met it seems to me that plaintiff is at point now of having to establish himself as an original source under the claims bar test although his brief at paragraph at page 11 says there's no evidence that he relied on any public information and bringing the action the truth is he quotes from a newspaper in his complaint he quotes extensively from the 2010 Lopez trial the court below found that there was a striking similarity between parts of his complaint and actual quotes from the newspaper articles that appeared in the fall of 05 and in the spring of 06 before his initial complaint so we are at the point I believe of him having to establish by a preponderance of evidence that he was the original source of that which is in his complaint I would like to invite the court's attention quickly to three points which I believe either one of which are sufficient to affirm as the district court noted there are several claims in the complaint that appear to come directly out of the newspaper accounts and he has repeatedly failed to rebut that he's been given opportunity after opportunity after opportunity the first affidavit that we saw was in reply to our opposition to his motion to file the second amended complaint it is very generic very plain very unspecific he does not address any of those things that came out of the newspaper in any way that would establish that he had independent knowledge and how he came to it that's number one number two in several of paragraphs in both the affidavit and the complaint he admits that his information is coming from third sources which by law prevents him from having direct and independent knowledge and thirdly there is nothing to establish that he told the government anything at all fraudulent about any of these defendants I understand in his oral argument this morning that he is conceding the point that he does not enjoy the retro activity that that that the amendments to the false claims act to which he's trying to claim entitlement to that they are this court has held that they're not retroactive and I understand that he's abandoning that but it does he's repeatedly says that and it strikes us as that he is he has relied on that aspect substantially in briefing this case on my first point which is public disclosure just an example paragraph 162 of the complaint the complaint is the joint appendix 227 recites three compliance reviews that Nish did this is where Nish goes in and does not an audit but some kind of a compliance review that was reported in the the J.A. 186 the March 6th Oregonian article and the PBS documentary that followed it said that the Oregonian got that through a pre-renewed information that request he has failed to tell us if he has independent knowledge of that what it is and where it came from and we would suggest that the reason is he can't he was gone he was never there when the two first two audits I'm sorry compliance reviews occurred and he was gone when the third one occurred as head of the corrugated box division it is hard to imagine that he would have ever been involved in anything to do with Nish another example paragraph 104 Nish signs off on some of these 404 forms which are disability certifications they don't appear in his first complaint they appear for the first time in the proposed second amended complaint the intervening event was the Lopez trial where these were a big deal and they're at J.A. 514 and 519 lastly on this subject there was an Oregonian article on March 5th the 06 J

. 186 the March 6th Oregonian article and the PBS documentary that followed it said that the Oregonian got that through a pre-renewed information that request he has failed to tell us if he has independent knowledge of that what it is and where it came from and we would suggest that the reason is he can't he was gone he was never there when the two first two audits I'm sorry compliance reviews occurred and he was gone when the third one occurred as head of the corrugated box division it is hard to imagine that he would have ever been involved in anything to do with Nish another example paragraph 104 Nish signs off on some of these 404 forms which are disability certifications they don't appear in his first complaint they appear for the first time in the proposed second amended complaint the intervening event was the Lopez trial where these were a big deal and they're at J.A. 514 and 519 lastly on this subject there was an Oregonian article on March 5th the 06 J.A. 145 where it recites that Nish's revenue by the end of 04 had climbed 86% over four years the 58 million annually that appears exactly in his proposed second amended complaint he never tells us if he didn't get it from the Oregonian where he got it his attempts to establish direct an independent knowledge our speculative at best I want to jump to the FBI issue we were before you do that yes talk about the allegations with respect to warehouse because it seems to me that as to that supplier there's some indication in the complaint that the plaintiff was there during the time yes recites these allegations and therefore might possibly qualify as an original source with respect to that's why why is that not the case it is normally the case that in analyzing this issue the court goes to the issue that Judd Hamilton raised which is where in the record does it appear that this was that you've told the government about this so my short answer to you judge D.S

.A. 145 where it recites that Nish's revenue by the end of 04 had climbed 86% over four years the 58 million annually that appears exactly in his proposed second amended complaint he never tells us if he didn't get it from the Oregonian where he got it his attempts to establish direct an independent knowledge our speculative at best I want to jump to the FBI issue we were before you do that yes talk about the allegations with respect to warehouse because it seems to me that as to that supplier there's some indication in the complaint that the plaintiff was there during the time yes recites these allegations and therefore might possibly qualify as an original source with respect to that's why why is that not the case it is normally the case that in analyzing this issue the court goes to the issue that Judd Hamilton raised which is where in the record does it appear that this was that you've told the government about this so my short answer to you judge D.S. is nowhere and he and I think that kills his claim right there I would acknowledge that this this warehouse are complaint is the first time he comes close to something that he learned on the job that's arguably independent and direct but he misses third base going around to home when he doesn't establish the fact that he told this to the FBI the FBI paragraph's 2023 in the Epidae but at 24 a are very general he says nothing about Nish he says a lot of NCED because that's who he thought was engaged in the fraud that's who he thought was engaged in the fraud and he does not the other thing I would say about where house or is under view you you have got to connect the allegation of misconduct at some point to a specific false claim or presentment which he does not do and so those are my answers to that question also I think Rockwell the Supreme Court case is informative on this because it says joining all claims in one lawsuit even if that one claim could stand alone does not save a complaint that otherwise is deficient under the under the claims part I do want to speak to in the I want to be sure that I speak to the issue that seems to be raised for the first time in the reply brief which is whether or not whether or not fraud was really disclosed about these defendants in the public disclosures that preceded his complaint prints and the Marion County case both speak to this and what they say is the public disclosure must contain allegations or disclosures sufficient to give an inference of fraud and I think it's the plaintiffs view that anything that was said about the box manufacturers was plain vanilla I would just invite the court's attention to one newspaper article J.A. 206th and November 27th El Paso Times article it relies on Jesse Cruz who was still at NCED who said he received boxes from IP smurf at in Green Bay I paused to point out if it's Jesse Cruz that was the original source of that article it's not the plaintiff as he claims to be he wants to be the first domino for the public disclosures but he certainly was not on this the article sites anonymous complaint to the committee for purchase that NCED certifies that it's disabled workforce produces the product but farms out the entire work to smaller firms each of which alters its paperwork Cruz was quoting is saying it's not an isolated instance they've been doing it for years a smurf at spokesman agreed that yes we've been doing it because it's customary and Cruz provided copies of the bills from international paper just that story alone reveals all of the elements of fraud that are in his complaint the NCED was cheating the government by falsifying the labor requirements that they were able to do this by farming out the box manufacturing to the box manufacturing firms and and the box manufacturing firms must have been in on it he says so each firm alters its paperwork accordingly so the right there is a sufficient allegation of fraud in the public record that he has failed to explain why he was why he has independent knowledge of any of that as regards the the niche matter regarding the disclosure to Mrs

. is nowhere and he and I think that kills his claim right there I would acknowledge that this this warehouse are complaint is the first time he comes close to something that he learned on the job that's arguably independent and direct but he misses third base going around to home when he doesn't establish the fact that he told this to the FBI the FBI paragraph's 2023 in the Epidae but at 24 a are very general he says nothing about Nish he says a lot of NCED because that's who he thought was engaged in the fraud that's who he thought was engaged in the fraud and he does not the other thing I would say about where house or is under view you you have got to connect the allegation of misconduct at some point to a specific false claim or presentment which he does not do and so those are my answers to that question also I think Rockwell the Supreme Court case is informative on this because it says joining all claims in one lawsuit even if that one claim could stand alone does not save a complaint that otherwise is deficient under the under the claims part I do want to speak to in the I want to be sure that I speak to the issue that seems to be raised for the first time in the reply brief which is whether or not whether or not fraud was really disclosed about these defendants in the public disclosures that preceded his complaint prints and the Marion County case both speak to this and what they say is the public disclosure must contain allegations or disclosures sufficient to give an inference of fraud and I think it's the plaintiffs view that anything that was said about the box manufacturers was plain vanilla I would just invite the court's attention to one newspaper article J.A. 206th and November 27th El Paso Times article it relies on Jesse Cruz who was still at NCED who said he received boxes from IP smurf at in Green Bay I paused to point out if it's Jesse Cruz that was the original source of that article it's not the plaintiff as he claims to be he wants to be the first domino for the public disclosures but he certainly was not on this the article sites anonymous complaint to the committee for purchase that NCED certifies that it's disabled workforce produces the product but farms out the entire work to smaller firms each of which alters its paperwork Cruz was quoting is saying it's not an isolated instance they've been doing it for years a smurf at spokesman agreed that yes we've been doing it because it's customary and Cruz provided copies of the bills from international paper just that story alone reveals all of the elements of fraud that are in his complaint the NCED was cheating the government by falsifying the labor requirements that they were able to do this by farming out the box manufacturing to the box manufacturing firms and and the box manufacturing firms must have been in on it he says so each firm alters its paperwork accordingly so the right there is a sufficient allegation of fraud in the public record that he has failed to explain why he was why he has independent knowledge of any of that as regards the the niche matter regarding the disclosure to Mrs. Gran miss granite daddy we again would point out that nothing about that was ever said to the FBI and and it's really speculative because what he says there is that he didn't say nishes in on it he infers that nish was in on it after he left employment and after he made that remark to her and then nothing happened it is an inference and under every case that we've read from the force circuit that kind of speculation and inference is inadequate for him to meet his burden the findings below were not clearly erroneous see your knowledge the FBI ever conduct any investigation after the fact after all the newspaper articles came out they did do an investigation your honor and there were indictments convictions and imprisonment for the NCED people what's unusual about this case and why I think it's very similar to the uru is in in the normal key tam case at the time you file your complaint you file a disclosure of all that your independent information at the same time so you could we can see what it was you had the moment you had the complaint but we don't have that here he has just general statements that I met with the FBI and I told him about jaywalk fraud or I told him about schemes so so if the FBI was helped by him it sure doesn't come across in his pleading ask another question before you yes sir sit down you focus in response to my inquiry about where how's about the fact and judge Hamilton raised this issue about the reporting element but I there was evidence in the record was there not that he did speak to FBI agents around 2006 and told him everything he knew about the current defendants that not actually I don't know the quote the quote that I remember is he told them about about all of the defendants everything he knew about all of the defendants in in January of 2006 I said jay five seventy eight I know I wrote that down and I can't find it now he I would suggest if that's what I'm trying to find the exact the exact note but I can't that I made to myself about that I do believe that that is an adequate because what this court has to determine is whether or not under the what is what is valuable about to the government what is valuable to Congress about this claims bar issue is did he advance the ball did he have first ball did he have independent and direct knowledge other than you know the words not from third sources and not from the public sources and did what he say advance the government's interests advance the ball and the only way you can assess that is did you say did you say we're cheating the government we at NCED and and and I have had conversations with these box manufacturers in which I said and here's how we're doing it we're taking your boxes we're passing them off as ours we're taking your invoices converting them to ours and the government doesn't know any better and were he to have said that and shared that with the FBI that would have advanced the ball are what we would urge the court to find on those very few provisions in his affidavit and in the complaint where he speaks about his conversations with the FBI is that they're just too vague thank you all right mr. we've missed it's Gerald may it please the court Matt Fitzgerald to address the additional grounds for affirming the judgment of the district court so they're a handful of these grounds appearing in the briefs but there are two that I'd like to address here first failure to plead fraud with particularity under rule 9b and second a failure of the of materiality under the false claims act and before I address these just briefly to correct a statement made earlier there's no allegation in the events he deals bills to the government now with regard to rule 9b the allegations in this case cover seven years they cover quote hundreds or thousands of alleged false claims to the government different products created by different manufacturers at different times and in fact there are five defendants in this case not one of whom is itself ever alleged to have submitted a false claim for payment to the government well even as even as to ncd he just to let's generalize to statement but then he doesn't allege any agreement among the parties that could amount to that's what your argument is that could amount to a submission causing the false claim to be submitted by a defendants in this case correct your honor and so and in fact the manufacturing defendants which is a handle for referring to the four independent manufacturing companies the term manufacturing defendants is used in the second amended complaint no fewer than 46 times again that's the second amended complaint so his third effort to plead fraud with particularity under rule 9b and that lumping together of the manufacturing defendants essentially it seems to create a hold that looks bigger than the sum of its parts because if you look at the allegations in the specific allegations or the allegations defendant by defendant there are big holds in each one so for instance although there are allegations that the manufacturing defendants gave rebates the manufacturing defendants were told of the fraud at ncd the manufacturing defendants got tours for instance there's no allegation that international paper ever gave a rebate at all there's no allegation that he told any identified person at international paper anything about the fraud there's no allegation that any specific person at international paper even received a tour of the facility and so similarly he's identified warehousing the reply brief identifies warehousing as quote the biggest perpetrator of wrongdoing in the second amended complaint but there is no allegation anywhere in the second-ended complaint that ahumata told warehousing anything about the fraud at ncd he's just got this I told the manufacturing defendants generally so the second point is there's a failure to plausibly plead the element of materiality under the false claims act and the rule that applies here is that in certification cases that is where the bills to the government or the annual certification forms are certifying regulatory compliance the key is that the condition must be a condition of payment by the government not just a condition of compliance with a program like j here the obviously the nob of the fraud is that ncd did not have 75% severely disabled labor that is a condition of participation in the j-wad program not specifically a condition of payment by the government I mean the government here ordered boxes it received the boxes that it ordered this is nothing like the more common false claims act claim where for instance the government ordered a hundred boxes and it got fifty boxes but the bill set a hundred or it got deficient boxes or as frequently happens in the Medicare context it ordered a hundred boxes and there were no boxes here the government ordered the boxes it got the boxes and it paid for the boxes even when it came out that ncd was not in compliance with the j-wad program so to the where the requirements of those contracts I'm now looking at the amicare cases like the arson was there a responsibility to certify with each bill that the boxes comply with j-wad well there's still thing about the contracts in the second amended complaint or the record your honor so based on what it's that you're the regs under submitting bills when you submit a bill do you have to certify that this complies with j-wad I'm not aware of any such requirement your honor and what the regulations actually say is it's 41 CFR 51-4.5 and it addresses what happens when one of these nonprofits falls below 75% it details investigation a chance to defend itself and at the end the risk is expulsion from the program so there isn't the idea that the government would not pay for boxes that are adequate is not supported by the regulations under the j-wad program so finally there was some discussion earlier of what ahumata had told green Bay specifically and so generally under 9b just to bring that back together so they're to respond to his allegation about what he told green Bay first if you look at the allegations about what green Bay is actually alleged to have done there are no specifics whatsoever about any sort of improper billing by green Bay or by smurfing stone for that matter so literally what green Bay and smurfing stone did to allegedly contribute to this fraud was make postal sleeves and sell them to ncd and so by trying to show that they knew and knowingly participated in the fraud by based on what he told them it's Relators burden to show and the minimum standard of knowing is reckless disregard which has generally been described as an aggravated form of gross negligence so the Relator needs to show that based on what he told green Bay and smurfing stone it was an aggravated form of gross negligence for them to simply do business with ncd at all and the complaint does not support that the second one complaints for that claim as to warehouse are given the fact that the later alleges that he gave a tour of the plant to one of warehouse's representatives where he saw according to the Relator the fraud and its full blue correct your owner well first of all a tour on one day of the plant could not possibly have given rise to the inference that ncd was out of compliance with the jayward program and that's because the requirements of the jayward program are for total direct labor 75% severely disabled total direct labor on an annual basis so as a matter of law anyone given day anyone tour of the facility by any one person could not create an inference of knowledge that ncd was out of compliance with jayward additionally I note that there's no detail at all about what was shown in particular on the tours or what the narration or description was of the tours and it doesn't seem a fair inference that the tours were narrated in a way that pointed out the fraud to these businessmen from other companies who whose own companies were not subject to jayward and had no particular reason to know anything about the details of that program so in some the false claims act requires materiality to payment not just to a condition of participation in the program and under rule 9b on the third try the Relator cannot lump four independent companies together 46 times and still get passed rule 9b there no further questions I'll see the rest of my time you mister it's gerald mister rest to all sorry honor back so first I'd like to discuss warehouse or which I think it's the as correctly focused on so let's go to warehouse there's two particular schemes that warehouse was involved in one was a fraudulent billing scheme which was sending rush eats and billing for I mean billing for rush eats when making complete nearly complete boxes there is no legitimate reason for doing that except the fraud secondly there's also no legitimate reason for billing and seed at overpriced rates and then forwarding rebate to bob Jones and the Jones family trust there's no legitimate reason I think I can hide and say a whole bunch of things but there's no legitimate reason for that as regards international paper excuse me international paper has the plant in El Paso what was the false claim against the United States government with respect to warehouse so the false claims are to that I read your complaint I just couldn't find a single false claim okay so so there so there's three one of them is that by and then we'll go and reverse order so by stamping the boxes with NCED stamp which says that these boxes have been made but manufactured by severely handicapped individuals which is a requirement for participating in the program and I'll read you those requirements in a second I understand so so my trouble is on this question my trouble is the same issue that we had in Omnicare which is there is a program that the government's interested in they're interested in this jaywalk program and they require certification for compliance and you get some special relationship with the government but while in that program they build boxes and sell boxes to the government and in connection I could find no place where in connection with submitting a claim for payment right they had to certify that the box complied with jaywalk as a condition of payment and there's no allegation that the bill says that there's no allegation that it's required and I'm not aware obviously I may not know all the corners of the regulations but I'm not aware of any regulation that requires that and in Omnicare we said in that circumstance the government was not there was not a false claim made against the government now there may be but in that case it was a practices that they couldn't conduct their business that they couldn't even manufacture them that way as a matter of fact they were adulterated they found they were adulterated right so they're selling adulterated goods to the government we still didn't find a false claim because the government pays always pays for adulterated goods what they do is there's other sanctions now here right there's a program a congressional program that requires certification to be in the program right but the question is when you are submitting the claim for the boxes was there ever a false claim made in connection with that submission so in theory every claim submitted where it's stamped that it was made by severely disabled individuals was a false claim and the reason being like that's like saying on a package of aspirin that the disclosure let me know you sell the aspirin and they pay for the aspirin and the government pays for it so there's a reason why nc ed was the only one that could provide postal trace to the government and not warehouse or who clearly had the capabilities for making them there's a reason why nc ed could provide the the the boxes the GSA boxes where international paper smurf its own or green they could not and that reason is because right made to the complaint a portion of the complaint where you see where you alleged that a claim was made to the government in connection with the sale of these boxes that was false that any state that was false in connection with the sale of a box and the payment by the government for the box so okay so there's I'll give back to the complaint in a second you want it because I don't have it well you have a memorizing there is an allocation in there that just a conclusion that you made a false claim that you know it but there's a number so first so let's go back to this time there's three there's three there's three so as regards to warehouse in which we're going back to warehouses so first it's the stamping of the boxes saying you know that they were made by handicapped people when they were not so that's one this that is a condition of payment because this condition participating in the program it's not like it's not like does not follow unless there's a regulation or a contractual like unlike unlike you're on an unlike your omnicare situation here the fact that it's a requirement is be lied by what the government actually did to enforce this regulation so first of all it prosecuted criminally the people who defrauded the government didn't it continue to pay for boxes afterwards even after discovering the fraud they continue to pay for boxes and the reason is because this is a program specifically made for providing employment for severely handicapped people so that would be like saying I mean imagine the pink slip dear severely handicapped individuals we are closing your plant and firing you because there's a handful of hand of non handicapped people who committed fraud in your name that would defeat the purpose of the statute you're missing my question all together the statute the J

. Gran miss granite daddy we again would point out that nothing about that was ever said to the FBI and and it's really speculative because what he says there is that he didn't say nishes in on it he infers that nish was in on it after he left employment and after he made that remark to her and then nothing happened it is an inference and under every case that we've read from the force circuit that kind of speculation and inference is inadequate for him to meet his burden the findings below were not clearly erroneous see your knowledge the FBI ever conduct any investigation after the fact after all the newspaper articles came out they did do an investigation your honor and there were indictments convictions and imprisonment for the NCED people what's unusual about this case and why I think it's very similar to the uru is in in the normal key tam case at the time you file your complaint you file a disclosure of all that your independent information at the same time so you could we can see what it was you had the moment you had the complaint but we don't have that here he has just general statements that I met with the FBI and I told him about jaywalk fraud or I told him about schemes so so if the FBI was helped by him it sure doesn't come across in his pleading ask another question before you yes sir sit down you focus in response to my inquiry about where how's about the fact and judge Hamilton raised this issue about the reporting element but I there was evidence in the record was there not that he did speak to FBI agents around 2006 and told him everything he knew about the current defendants that not actually I don't know the quote the quote that I remember is he told them about about all of the defendants everything he knew about all of the defendants in in January of 2006 I said jay five seventy eight I know I wrote that down and I can't find it now he I would suggest if that's what I'm trying to find the exact the exact note but I can't that I made to myself about that I do believe that that is an adequate because what this court has to determine is whether or not under the what is what is valuable about to the government what is valuable to Congress about this claims bar issue is did he advance the ball did he have first ball did he have independent and direct knowledge other than you know the words not from third sources and not from the public sources and did what he say advance the government's interests advance the ball and the only way you can assess that is did you say did you say we're cheating the government we at NCED and and and I have had conversations with these box manufacturers in which I said and here's how we're doing it we're taking your boxes we're passing them off as ours we're taking your invoices converting them to ours and the government doesn't know any better and were he to have said that and shared that with the FBI that would have advanced the ball are what we would urge the court to find on those very few provisions in his affidavit and in the complaint where he speaks about his conversations with the FBI is that they're just too vague thank you all right mr. we've missed it's Gerald may it please the court Matt Fitzgerald to address the additional grounds for affirming the judgment of the district court so they're a handful of these grounds appearing in the briefs but there are two that I'd like to address here first failure to plead fraud with particularity under rule 9b and second a failure of the of materiality under the false claims act and before I address these just briefly to correct a statement made earlier there's no allegation in the events he deals bills to the government now with regard to rule 9b the allegations in this case cover seven years they cover quote hundreds or thousands of alleged false claims to the government different products created by different manufacturers at different times and in fact there are five defendants in this case not one of whom is itself ever alleged to have submitted a false claim for payment to the government well even as even as to ncd he just to let's generalize to statement but then he doesn't allege any agreement among the parties that could amount to that's what your argument is that could amount to a submission causing the false claim to be submitted by a defendants in this case correct your honor and so and in fact the manufacturing defendants which is a handle for referring to the four independent manufacturing companies the term manufacturing defendants is used in the second amended complaint no fewer than 46 times again that's the second amended complaint so his third effort to plead fraud with particularity under rule 9b and that lumping together of the manufacturing defendants essentially it seems to create a hold that looks bigger than the sum of its parts because if you look at the allegations in the specific allegations or the allegations defendant by defendant there are big holds in each one so for instance although there are allegations that the manufacturing defendants gave rebates the manufacturing defendants were told of the fraud at ncd the manufacturing defendants got tours for instance there's no allegation that international paper ever gave a rebate at all there's no allegation that he told any identified person at international paper anything about the fraud there's no allegation that any specific person at international paper even received a tour of the facility and so similarly he's identified warehousing the reply brief identifies warehousing as quote the biggest perpetrator of wrongdoing in the second amended complaint but there is no allegation anywhere in the second-ended complaint that ahumata told warehousing anything about the fraud at ncd he's just got this I told the manufacturing defendants generally so the second point is there's a failure to plausibly plead the element of materiality under the false claims act and the rule that applies here is that in certification cases that is where the bills to the government or the annual certification forms are certifying regulatory compliance the key is that the condition must be a condition of payment by the government not just a condition of compliance with a program like j here the obviously the nob of the fraud is that ncd did not have 75% severely disabled labor that is a condition of participation in the j-wad program not specifically a condition of payment by the government I mean the government here ordered boxes it received the boxes that it ordered this is nothing like the more common false claims act claim where for instance the government ordered a hundred boxes and it got fifty boxes but the bill set a hundred or it got deficient boxes or as frequently happens in the Medicare context it ordered a hundred boxes and there were no boxes here the government ordered the boxes it got the boxes and it paid for the boxes even when it came out that ncd was not in compliance with the j-wad program so to the where the requirements of those contracts I'm now looking at the amicare cases like the arson was there a responsibility to certify with each bill that the boxes comply with j-wad well there's still thing about the contracts in the second amended complaint or the record your honor so based on what it's that you're the regs under submitting bills when you submit a bill do you have to certify that this complies with j-wad I'm not aware of any such requirement your honor and what the regulations actually say is it's 41 CFR 51-4.5 and it addresses what happens when one of these nonprofits falls below 75% it details investigation a chance to defend itself and at the end the risk is expulsion from the program so there isn't the idea that the government would not pay for boxes that are adequate is not supported by the regulations under the j-wad program so finally there was some discussion earlier of what ahumata had told green Bay specifically and so generally under 9b just to bring that back together so they're to respond to his allegation about what he told green Bay first if you look at the allegations about what green Bay is actually alleged to have done there are no specifics whatsoever about any sort of improper billing by green Bay or by smurfing stone for that matter so literally what green Bay and smurfing stone did to allegedly contribute to this fraud was make postal sleeves and sell them to ncd and so by trying to show that they knew and knowingly participated in the fraud by based on what he told them it's Relators burden to show and the minimum standard of knowing is reckless disregard which has generally been described as an aggravated form of gross negligence so the Relator needs to show that based on what he told green Bay and smurfing stone it was an aggravated form of gross negligence for them to simply do business with ncd at all and the complaint does not support that the second one complaints for that claim as to warehouse are given the fact that the later alleges that he gave a tour of the plant to one of warehouse's representatives where he saw according to the Relator the fraud and its full blue correct your owner well first of all a tour on one day of the plant could not possibly have given rise to the inference that ncd was out of compliance with the jayward program and that's because the requirements of the jayward program are for total direct labor 75% severely disabled total direct labor on an annual basis so as a matter of law anyone given day anyone tour of the facility by any one person could not create an inference of knowledge that ncd was out of compliance with jayward additionally I note that there's no detail at all about what was shown in particular on the tours or what the narration or description was of the tours and it doesn't seem a fair inference that the tours were narrated in a way that pointed out the fraud to these businessmen from other companies who whose own companies were not subject to jayward and had no particular reason to know anything about the details of that program so in some the false claims act requires materiality to payment not just to a condition of participation in the program and under rule 9b on the third try the Relator cannot lump four independent companies together 46 times and still get passed rule 9b there no further questions I'll see the rest of my time you mister it's gerald mister rest to all sorry honor back so first I'd like to discuss warehouse or which I think it's the as correctly focused on so let's go to warehouse there's two particular schemes that warehouse was involved in one was a fraudulent billing scheme which was sending rush eats and billing for I mean billing for rush eats when making complete nearly complete boxes there is no legitimate reason for doing that except the fraud secondly there's also no legitimate reason for billing and seed at overpriced rates and then forwarding rebate to bob Jones and the Jones family trust there's no legitimate reason I think I can hide and say a whole bunch of things but there's no legitimate reason for that as regards international paper excuse me international paper has the plant in El Paso what was the false claim against the United States government with respect to warehouse so the false claims are to that I read your complaint I just couldn't find a single false claim okay so so there so there's three one of them is that by and then we'll go and reverse order so by stamping the boxes with NCED stamp which says that these boxes have been made but manufactured by severely handicapped individuals which is a requirement for participating in the program and I'll read you those requirements in a second I understand so so my trouble is on this question my trouble is the same issue that we had in Omnicare which is there is a program that the government's interested in they're interested in this jaywalk program and they require certification for compliance and you get some special relationship with the government but while in that program they build boxes and sell boxes to the government and in connection I could find no place where in connection with submitting a claim for payment right they had to certify that the box complied with jaywalk as a condition of payment and there's no allegation that the bill says that there's no allegation that it's required and I'm not aware obviously I may not know all the corners of the regulations but I'm not aware of any regulation that requires that and in Omnicare we said in that circumstance the government was not there was not a false claim made against the government now there may be but in that case it was a practices that they couldn't conduct their business that they couldn't even manufacture them that way as a matter of fact they were adulterated they found they were adulterated right so they're selling adulterated goods to the government we still didn't find a false claim because the government pays always pays for adulterated goods what they do is there's other sanctions now here right there's a program a congressional program that requires certification to be in the program right but the question is when you are submitting the claim for the boxes was there ever a false claim made in connection with that submission so in theory every claim submitted where it's stamped that it was made by severely disabled individuals was a false claim and the reason being like that's like saying on a package of aspirin that the disclosure let me know you sell the aspirin and they pay for the aspirin and the government pays for it so there's a reason why nc ed was the only one that could provide postal trace to the government and not warehouse or who clearly had the capabilities for making them there's a reason why nc ed could provide the the the boxes the GSA boxes where international paper smurf its own or green they could not and that reason is because right made to the complaint a portion of the complaint where you see where you alleged that a claim was made to the government in connection with the sale of these boxes that was false that any state that was false in connection with the sale of a box and the payment by the government for the box so okay so there's I'll give back to the complaint in a second you want it because I don't have it well you have a memorizing there is an allocation in there that just a conclusion that you made a false claim that you know it but there's a number so first so let's go back to this time there's three there's three there's three so as regards to warehouse in which we're going back to warehouses so first it's the stamping of the boxes saying you know that they were made by handicapped people when they were not so that's one this that is a condition of payment because this condition participating in the program it's not like it's not like does not follow unless there's a regulation or a contractual like unlike unlike you're on an unlike your omnicare situation here the fact that it's a requirement is be lied by what the government actually did to enforce this regulation so first of all it prosecuted criminally the people who defrauded the government didn't it continue to pay for boxes afterwards even after discovering the fraud they continue to pay for boxes and the reason is because this is a program specifically made for providing employment for severely handicapped people so that would be like saying I mean imagine the pink slip dear severely handicapped individuals we are closing your plant and firing you because there's a handful of hand of non handicapped people who committed fraud in your name that would defeat the purpose of the statute you're missing my question all together the statute the J. Wogged statute was violated and they misrepresented and they covered it up and they lied about it and they had kicked backs and everything those guys were prosecuted but the false claim act is under specific act that has specific requirements that say you have to make a false statement in connection with a claim for payment from the government and I'm looking for that and my point is you're just saying it's fraud because they sent bad boxes but that doesn't satisfy the false claim act let's get away from the bad boxes let's talk about the rebate fair enough so where how's it so they're enough well no no no no no I understand just understand I need to find where there was a contractual obligation to make the statements you say number two where there's a regulation or regulation there was a contractual obligation to provide the cost for the boxes the accurate cost for the boxes to the government where's that that's in the in the contracting documents for under J. Wogged so it's a cost plus program so the box the the NCD the contractor provides a government with a list of costs as these are my costs and therefore my margin of gain is x and therefore it was in the I mean it was in there and it was in the briefs especially the original briefs to the but here here's my point so by not providing the government with accurate information as to what the underlying costs of the boxes were i.e

. Wogged statute was violated and they misrepresented and they covered it up and they lied about it and they had kicked backs and everything those guys were prosecuted but the false claim act is under specific act that has specific requirements that say you have to make a false statement in connection with a claim for payment from the government and I'm looking for that and my point is you're just saying it's fraud because they sent bad boxes but that doesn't satisfy the false claim act let's get away from the bad boxes let's talk about the rebate fair enough so where how's it so they're enough well no no no no no I understand just understand I need to find where there was a contractual obligation to make the statements you say number two where there's a regulation or regulation there was a contractual obligation to provide the cost for the boxes the accurate cost for the boxes to the government where's that that's in the in the contracting documents for under J. Wogged so it's a cost plus program so the box the the NCD the contractor provides a government with a list of costs as these are my costs and therefore my margin of gain is x and therefore it was in the I mean it was in there and it was in the briefs especially the original briefs to the but here here's my point so by not providing the government with accurate information as to what the underlying costs of the boxes were i.e. by saying hey bill me higher so I can bill the government high where they contract yes that's put there's that you're on it I don't it's it's in the CFR I don't have the complaint I don't have the the actual language in front of me but that's that is the rebate scheme otherwise there's no reason for the rebates they wouldn't be fraudulent if they didn't have to pass on the cost of the government if they didn't have to pass on the rebates of the government there would have been no reason the statement may be fraudulent but the false claim act requires a false statement to be made to the United States government for the payment of money the false statement was that this box costs x amount when in reality that box did not cost x amount I didn't see that I I even in your proposed second amended complaint in the proposed second amended complaint I understood that that was the part that was the rebate scheme otherwise there's no reason for a rebate scheme to be alleged you on I am done yeah if you have questions I'll wildly continue all right thank you mr. rest it will a adjourned court signing die and then come down and greet counsel

. by saying hey bill me higher so I can bill the government high where they contract yes that's put there's that you're on it I don't it's it's in the CFR I don't have the complaint I don't have the the actual language in front of me but that's that is the rebate scheme otherwise there's no reason for the rebates they wouldn't be fraudulent if they didn't have to pass on the cost of the government if they didn't have to pass on the rebates of the government there would have been no reason the statement may be fraudulent but the false claim act requires a false statement to be made to the United States government for the payment of money the false statement was that this box costs x amount when in reality that box did not cost x amount I didn't see that I I even in your proposed second amended complaint in the proposed second amended complaint I understood that that was the part that was the rebate scheme otherwise there's no reason for a rebate scheme to be alleged you on I am done yeah if you have questions I'll wildly continue all right thank you mr. rest it will a adjourned court signing die and then come down and greet counsel

United States Exwell. I'm a I'm a moda versus niche and I guess we have a cast here. Mr. Resta you for here from you first. May I please the court, Martin Estatullio for the appellant Michael Almada. Your honor we're appealing your honors we're appealing to aspects of the lower courts decision. One of them being that the later the relators are the gations are not based on public disclosures which the lower court found and the second one has to do with the mill for admission of the second amended complaint. So your honor first of all the first amended complaint in this action was filed under seal in June 2007. That was the first time that the current defendants were named in this action and at that time the applicable statute regarding public disclosures was 3730 E4. It basically said that no no courts have jurisdiction. There is this action based upon the public disclosures of the allegations or transactions in a criminal civil or administrative hearing in a congressional administrative government counseling. Accounting office report hearing audit or from news media here will be focusing on news media unless the action is brought by the attorney general or the person bringing the action is an original source. Just last month this court applied this same 2006 version of the False Claims Act when evaluating the case filed US X-Roll Ross told their verses on the care ink. It was provided to your to your honors by appellees. So are you conceding that it's the 2006 version of a statute that applies because your brief seemed to have this for this matter and for these purposes your honor it doesn't really matter the 2006 as far as the public disclosure allegations for if we're talking about later when defining knowingly the 2009 version is applicable. I we would argue that the 2009 app version is applicable here. My point is under no scenario was they are public disclosures as to the box manufacturers and if there's no public disclosure it's the same standard whether it be 2006 or 2009. So for example as regards the box manufacturers the appellant the plaintiff had three allegations. One of them was that the defendants in this case were invoicing for raw sheets when they were actually providing complete or nearly complete boxes. Other than this action to date there has never been a public disclosure about that. So there can't be a public this they can't get they can't be a failure to have subject matter jurisdiction for public for public disclosure whether there's no public disclosure. Second allegation in plaintiffs complaint was that the defendants were well I thought in your brief that you you never really argue that the allegations and the complaint were not based on a public disclosure but instead you're focusing on original source. No that was that was sort of the backup there were three allegations. The backup was so first let's let's talk about the panoply of defendants. There are five defendants four box manufacturers one is regarding niche so for the three box manufacturer for the four box manufacturers there were three allegations. Two of them have never been publicly disclosed. One of them it's on defense. There's to that in a second for niche there were public discosures and that's where we're arguing that the plaintiff the related was the original source. Now the defendants here had their argument with niche because there were numerous stories about niche and so that sort of tip the the balance of the argument one way versus the other. But the reality is that when taken into account and you look at all the allegations against all of the defendants the original source as far as him being the source of the of the stories is only one portion of it and he was the source and he was there for the original source but I'd like to sort of lay out the groundwork for the whole scheme so that everybody's on the same page. Where does the requirement of notifying the government about these violations come into play? Did he ever notify the government about it? He did he actually tried to notify the government three times so the first time niche which is a quasi-government office and he understood to be the government he called up niche and said hey there's there's there's there's for I'd be in committed at NCED so niche up until that point he didn't know that niche was in on the scheme so niche rebuffed him and then complained back to NCED saying that you know this guy's causing trouble for you subsequent to that there are but that's not disclosed that's not telling the government that well at that point he understood niche to be the government then the next step may have been he was wrong about that obviously okay then the next step is he told the United States Post Office again another agency which he understood to be the government and finally when all that failed he then spoke to the FBI so on three occasions he actually spoke to the government and no one will deny that the FBI at least is the government and that was prior to filing the complaint so and by the way prior to these public disclosures that are alleged so the third by the way scheme that the box manufacturers alleged that there was some public disclosure is one story all of one story cited in it's in the the joint appeal record as a 205 to 207 the story focuses actually the story focuses on NCED and about how it forms out businesses it mentions only three of the four defendants it only mentions possibly one scheme which is them stamping the boxes with NCED's box manufacturing certificate but it doesn't draw a conclusion one way or the other it specifically leaves out where a house or which is pointing to us the biggest culprit of these and so it that one story which by the way I'll show you in a second he was the original source for cannot be the basis for dismissing all three allegations and subject manager's fiction against all defendants for all three allegations so as regards that one story by the way it was the Oregonian was the first newspaper to arrive in El Paso they were actually drafting a they were investigating a story about executive excessive executive compensation and not for profits various not for profits across the country not specifically NCED not specifically El Paso in fact the story is site excessive compensation for not for profits in Portland Tennessee Texas being one of them as well how would that benefit your plan well let's get so here's what happens what these papers disclose well they they they didn't that's the whole point so what happens is he went by the time the Oregonian arrived in El Paso in 2005 it had been already one year at about one year they arrived in October 2005 and my client was terminated from his employment in July 2004 it already been one year since he discovered the fraud at NCED he told the box manufacturers in particular Green Bay and Smurf its stone hey there's a fraud going on there don't do business with them it had been one year since he complained to niche it had been one year since he complained to the US post office saying hey these guys are committing a fraud so the Oregonian arrives now the Oregonian is talking about exact excessive executive pay in not for profit institutions when they arrive they meet up with with the realtor who says okay listen I can put you in contact with folks that'll talk about that moreover by the way I think the real story is that they're not even complying with the J-Wod program you should check that out the fact is and by the way you should check it out because I think niche is in on it so subsequent to that point parting from that point is when the the Oregonian begins to publish a series of stories now no longer focused on the five or six executives throughout the country that works that were receiving excessive executive pay now of a sudden because they were they received the information from this guy they're now focusing on ncd while that's happening the realtor calls up his friend which is the the local reporter and says hey listen the Oregonian was here a couple of weeks ago they're gonna write a story about ncd I think it's I think it should be reported on by a local newspaper and so David Crowder the latest friend calls it comes in and then he starts publishing stories about ncd and about their violation so to put it back in context one prior to him filing the complaint there was only one public disclosure at best against the box manufacturers secondly to the extent that there was a public disclosure he was the one who informed the Oregonian and the El Paso times about it so the same goes the the timeline begins from there it's the same for niche he put the he uncovered the fraud for all of these folks now so here we go so second you call it a fraud yes I guess the fraud you're talking about is that they are reporting to comply with a program when in fact they're not the fraud is that they're actively certifying to the United States government that they comply with a program that allows them to receive no bid contracts if they comply with the criteria yes that's part of the j-walk program that's exactly right and certifications are done what Sun and you'll hear I assuming analy by so by ncd and then signed off by nish and they file that to say they're complying with the program they file that to say they're complying with the program now it was there any discovery of a false statement made by the company here in connection with getting payment from the government for these five I'm sort of the statement the statement is the annual certification so the answer is so there's twofold so that's not a false claim that's a certification to participate in a program well false claim would have to be the bill that goes to the government so both so so in all I want to focus on that okay and well then this goes back to your discussion on materiality which you guys discussed in the in the previous case so there's two things so one for every bill that ncd submits and for every box did they ever saw any bill he did see bills and do you see a false statement on those bills yeah I mean that's how he knows that they were building for raw sheets when in fact they were getting full boxes but he was only there for six months and a lot of this activity occurred well some of the activity let me finish sorry most of necessarily occurred after he left how could he possibly have seen bills or spoken to people after the fact so so let's go back to that point so the reality is first when you say he was only there for six months this gentleman had been in the box manufacturing industry for 20 years so it wasn't like you know he did not know what that box manufacturing industry was when he came on to ncd ncd he came on as vice president in charge of the cargated division there's only two divisions at ncd when he arrived so there's garments and there's cargated division as part of that he was part of the little handful of management team that oversaw all of the of the services that ncd provided while he was there by the way we're house or was supplying boxes to ncd international paper say an Antonio was supplying boxes to ncd because the plant manager at El Paso refused to provide the fraudulent services that Bob Jones desired and cd and mish was always certifying ncd smurfed stone and green bay were invited to the plant while he was there because he was trying to increase production and he wanted their their input on how he could do that best so after he left and by the way when he came over to ncd he brought his team from smurfed stone so it wasn't like you know he didn't have friends there that he was talking to and so the fact is that after he left he continued to talk to these people so when green bay by the way he approached green bay subsequently leaving and says hey listen they're committing a fraud there I want to start a legitimate business what happens is green bay reports back to ncd and see these starts making boxes with green bay and when he finds out he's already got all the pieces of the puzzle green bay had been there he had been there he knows there's a fraud he tells green bay about the fraud all that needs to happen is that one of his friends says hey by the way Mike green Bay is now making boxes he calls up green Bay at Wisconsin by the way the vice president of green Bay at Wisconsin doesn't just take a call from the janitor of of of ncd so he he is this person in the industry he calls up green Bay in Wisconsin and says hey your guys are committing a fraud by making these boxes that was ignored smurf its stone again he finds out he worked at smurf its stone for 20 years he was part of this president's club he knew everybody at smurf its stone when he finds out smurf its stone is making these boxes he goes to the guys at the plan says you know manny manny louerra you're making boxes oh listen Bob Jones has contacts in Washington don't worry about it we got this taken care of so they too chose to ignore it so I think you know the the allegation that these things happen after he was gone and that somehow you know about it he was already in the mix there was no way for that to happen my red light yeah yeah you're right like you do have some time we'll see you back then I guess we'll hear first from mr. weaver may please the court I'm Robert weaver I am counsel for smurf its stone container and I've been asked to speak on behalf of all the defendants to the issue of whether or not the plaintiff in this case has adequately established his credentials as a original source of the that which was publicly disclosed and it is found in his complaint and mr. Fitzgerald will speak to following me to the question of whether or not the requirements of rule 9 and rule 12 have been met it seems to me that plaintiff is at point now of having to establish himself as an original source under the claims bar test although his brief at paragraph at page 11 says there's no evidence that he relied on any public information and bringing the action the truth is he quotes from a newspaper in his complaint he quotes extensively from the 2010 Lopez trial the court below found that there was a striking similarity between parts of his complaint and actual quotes from the newspaper articles that appeared in the fall of 05 and in the spring of 06 before his initial complaint so we are at the point I believe of him having to establish by a preponderance of evidence that he was the original source of that which is in his complaint I would like to invite the court's attention quickly to three points which I believe either one of which are sufficient to affirm as the district court noted there are several claims in the complaint that appear to come directly out of the newspaper accounts and he has repeatedly failed to rebut that he's been given opportunity after opportunity after opportunity the first affidavit that we saw was in reply to our opposition to his motion to file the second amended complaint it is very generic very plain very unspecific he does not address any of those things that came out of the newspaper in any way that would establish that he had independent knowledge and how he came to it that's number one number two in several of paragraphs in both the affidavit and the complaint he admits that his information is coming from third sources which by law prevents him from having direct and independent knowledge and thirdly there is nothing to establish that he told the government anything at all fraudulent about any of these defendants I understand in his oral argument this morning that he is conceding the point that he does not enjoy the retro activity that that that the amendments to the false claims act to which he's trying to claim entitlement to that they are this court has held that they're not retroactive and I understand that he's abandoning that but it does he's repeatedly says that and it strikes us as that he is he has relied on that aspect substantially in briefing this case on my first point which is public disclosure just an example paragraph 162 of the complaint the complaint is the joint appendix 227 recites three compliance reviews that Nish did this is where Nish goes in and does not an audit but some kind of a compliance review that was reported in the the J.A. 186 the March 6th Oregonian article and the PBS documentary that followed it said that the Oregonian got that through a pre-renewed information that request he has failed to tell us if he has independent knowledge of that what it is and where it came from and we would suggest that the reason is he can't he was gone he was never there when the two first two audits I'm sorry compliance reviews occurred and he was gone when the third one occurred as head of the corrugated box division it is hard to imagine that he would have ever been involved in anything to do with Nish another example paragraph 104 Nish signs off on some of these 404 forms which are disability certifications they don't appear in his first complaint they appear for the first time in the proposed second amended complaint the intervening event was the Lopez trial where these were a big deal and they're at J.A. 514 and 519 lastly on this subject there was an Oregonian article on March 5th the 06 J.A. 145 where it recites that Nish's revenue by the end of 04 had climbed 86% over four years the 58 million annually that appears exactly in his proposed second amended complaint he never tells us if he didn't get it from the Oregonian where he got it his attempts to establish direct an independent knowledge our speculative at best I want to jump to the FBI issue we were before you do that yes talk about the allegations with respect to warehouse because it seems to me that as to that supplier there's some indication in the complaint that the plaintiff was there during the time yes recites these allegations and therefore might possibly qualify as an original source with respect to that's why why is that not the case it is normally the case that in analyzing this issue the court goes to the issue that Judd Hamilton raised which is where in the record does it appear that this was that you've told the government about this so my short answer to you judge D.S. is nowhere and he and I think that kills his claim right there I would acknowledge that this this warehouse are complaint is the first time he comes close to something that he learned on the job that's arguably independent and direct but he misses third base going around to home when he doesn't establish the fact that he told this to the FBI the FBI paragraph's 2023 in the Epidae but at 24 a are very general he says nothing about Nish he says a lot of NCED because that's who he thought was engaged in the fraud that's who he thought was engaged in the fraud and he does not the other thing I would say about where house or is under view you you have got to connect the allegation of misconduct at some point to a specific false claim or presentment which he does not do and so those are my answers to that question also I think Rockwell the Supreme Court case is informative on this because it says joining all claims in one lawsuit even if that one claim could stand alone does not save a complaint that otherwise is deficient under the under the claims part I do want to speak to in the I want to be sure that I speak to the issue that seems to be raised for the first time in the reply brief which is whether or not whether or not fraud was really disclosed about these defendants in the public disclosures that preceded his complaint prints and the Marion County case both speak to this and what they say is the public disclosure must contain allegations or disclosures sufficient to give an inference of fraud and I think it's the plaintiffs view that anything that was said about the box manufacturers was plain vanilla I would just invite the court's attention to one newspaper article J.A. 206th and November 27th El Paso Times article it relies on Jesse Cruz who was still at NCED who said he received boxes from IP smurf at in Green Bay I paused to point out if it's Jesse Cruz that was the original source of that article it's not the plaintiff as he claims to be he wants to be the first domino for the public disclosures but he certainly was not on this the article sites anonymous complaint to the committee for purchase that NCED certifies that it's disabled workforce produces the product but farms out the entire work to smaller firms each of which alters its paperwork Cruz was quoting is saying it's not an isolated instance they've been doing it for years a smurf at spokesman agreed that yes we've been doing it because it's customary and Cruz provided copies of the bills from international paper just that story alone reveals all of the elements of fraud that are in his complaint the NCED was cheating the government by falsifying the labor requirements that they were able to do this by farming out the box manufacturing to the box manufacturing firms and and the box manufacturing firms must have been in on it he says so each firm alters its paperwork accordingly so the right there is a sufficient allegation of fraud in the public record that he has failed to explain why he was why he has independent knowledge of any of that as regards the the niche matter regarding the disclosure to Mrs. Gran miss granite daddy we again would point out that nothing about that was ever said to the FBI and and it's really speculative because what he says there is that he didn't say nishes in on it he infers that nish was in on it after he left employment and after he made that remark to her and then nothing happened it is an inference and under every case that we've read from the force circuit that kind of speculation and inference is inadequate for him to meet his burden the findings below were not clearly erroneous see your knowledge the FBI ever conduct any investigation after the fact after all the newspaper articles came out they did do an investigation your honor and there were indictments convictions and imprisonment for the NCED people what's unusual about this case and why I think it's very similar to the uru is in in the normal key tam case at the time you file your complaint you file a disclosure of all that your independent information at the same time so you could we can see what it was you had the moment you had the complaint but we don't have that here he has just general statements that I met with the FBI and I told him about jaywalk fraud or I told him about schemes so so if the FBI was helped by him it sure doesn't come across in his pleading ask another question before you yes sir sit down you focus in response to my inquiry about where how's about the fact and judge Hamilton raised this issue about the reporting element but I there was evidence in the record was there not that he did speak to FBI agents around 2006 and told him everything he knew about the current defendants that not actually I don't know the quote the quote that I remember is he told them about about all of the defendants everything he knew about all of the defendants in in January of 2006 I said jay five seventy eight I know I wrote that down and I can't find it now he I would suggest if that's what I'm trying to find the exact the exact note but I can't that I made to myself about that I do believe that that is an adequate because what this court has to determine is whether or not under the what is what is valuable about to the government what is valuable to Congress about this claims bar issue is did he advance the ball did he have first ball did he have independent and direct knowledge other than you know the words not from third sources and not from the public sources and did what he say advance the government's interests advance the ball and the only way you can assess that is did you say did you say we're cheating the government we at NCED and and and I have had conversations with these box manufacturers in which I said and here's how we're doing it we're taking your boxes we're passing them off as ours we're taking your invoices converting them to ours and the government doesn't know any better and were he to have said that and shared that with the FBI that would have advanced the ball are what we would urge the court to find on those very few provisions in his affidavit and in the complaint where he speaks about his conversations with the FBI is that they're just too vague thank you all right mr. we've missed it's Gerald may it please the court Matt Fitzgerald to address the additional grounds for affirming the judgment of the district court so they're a handful of these grounds appearing in the briefs but there are two that I'd like to address here first failure to plead fraud with particularity under rule 9b and second a failure of the of materiality under the false claims act and before I address these just briefly to correct a statement made earlier there's no allegation in the events he deals bills to the government now with regard to rule 9b the allegations in this case cover seven years they cover quote hundreds or thousands of alleged false claims to the government different products created by different manufacturers at different times and in fact there are five defendants in this case not one of whom is itself ever alleged to have submitted a false claim for payment to the government well even as even as to ncd he just to let's generalize to statement but then he doesn't allege any agreement among the parties that could amount to that's what your argument is that could amount to a submission causing the false claim to be submitted by a defendants in this case correct your honor and so and in fact the manufacturing defendants which is a handle for referring to the four independent manufacturing companies the term manufacturing defendants is used in the second amended complaint no fewer than 46 times again that's the second amended complaint so his third effort to plead fraud with particularity under rule 9b and that lumping together of the manufacturing defendants essentially it seems to create a hold that looks bigger than the sum of its parts because if you look at the allegations in the specific allegations or the allegations defendant by defendant there are big holds in each one so for instance although there are allegations that the manufacturing defendants gave rebates the manufacturing defendants were told of the fraud at ncd the manufacturing defendants got tours for instance there's no allegation that international paper ever gave a rebate at all there's no allegation that he told any identified person at international paper anything about the fraud there's no allegation that any specific person at international paper even received a tour of the facility and so similarly he's identified warehousing the reply brief identifies warehousing as quote the biggest perpetrator of wrongdoing in the second amended complaint but there is no allegation anywhere in the second-ended complaint that ahumata told warehousing anything about the fraud at ncd he's just got this I told the manufacturing defendants generally so the second point is there's a failure to plausibly plead the element of materiality under the false claims act and the rule that applies here is that in certification cases that is where the bills to the government or the annual certification forms are certifying regulatory compliance the key is that the condition must be a condition of payment by the government not just a condition of compliance with a program like j here the obviously the nob of the fraud is that ncd did not have 75% severely disabled labor that is a condition of participation in the j-wad program not specifically a condition of payment by the government I mean the government here ordered boxes it received the boxes that it ordered this is nothing like the more common false claims act claim where for instance the government ordered a hundred boxes and it got fifty boxes but the bill set a hundred or it got deficient boxes or as frequently happens in the Medicare context it ordered a hundred boxes and there were no boxes here the government ordered the boxes it got the boxes and it paid for the boxes even when it came out that ncd was not in compliance with the j-wad program so to the where the requirements of those contracts I'm now looking at the amicare cases like the arson was there a responsibility to certify with each bill that the boxes comply with j-wad well there's still thing about the contracts in the second amended complaint or the record your honor so based on what it's that you're the regs under submitting bills when you submit a bill do you have to certify that this complies with j-wad I'm not aware of any such requirement your honor and what the regulations actually say is it's 41 CFR 51-4.5 and it addresses what happens when one of these nonprofits falls below 75% it details investigation a chance to defend itself and at the end the risk is expulsion from the program so there isn't the idea that the government would not pay for boxes that are adequate is not supported by the regulations under the j-wad program so finally there was some discussion earlier of what ahumata had told green Bay specifically and so generally under 9b just to bring that back together so they're to respond to his allegation about what he told green Bay first if you look at the allegations about what green Bay is actually alleged to have done there are no specifics whatsoever about any sort of improper billing by green Bay or by smurfing stone for that matter so literally what green Bay and smurfing stone did to allegedly contribute to this fraud was make postal sleeves and sell them to ncd and so by trying to show that they knew and knowingly participated in the fraud by based on what he told them it's Relators burden to show and the minimum standard of knowing is reckless disregard which has generally been described as an aggravated form of gross negligence so the Relator needs to show that based on what he told green Bay and smurfing stone it was an aggravated form of gross negligence for them to simply do business with ncd at all and the complaint does not support that the second one complaints for that claim as to warehouse are given the fact that the later alleges that he gave a tour of the plant to one of warehouse's representatives where he saw according to the Relator the fraud and its full blue correct your owner well first of all a tour on one day of the plant could not possibly have given rise to the inference that ncd was out of compliance with the jayward program and that's because the requirements of the jayward program are for total direct labor 75% severely disabled total direct labor on an annual basis so as a matter of law anyone given day anyone tour of the facility by any one person could not create an inference of knowledge that ncd was out of compliance with jayward additionally I note that there's no detail at all about what was shown in particular on the tours or what the narration or description was of the tours and it doesn't seem a fair inference that the tours were narrated in a way that pointed out the fraud to these businessmen from other companies who whose own companies were not subject to jayward and had no particular reason to know anything about the details of that program so in some the false claims act requires materiality to payment not just to a condition of participation in the program and under rule 9b on the third try the Relator cannot lump four independent companies together 46 times and still get passed rule 9b there no further questions I'll see the rest of my time you mister it's gerald mister rest to all sorry honor back so first I'd like to discuss warehouse or which I think it's the as correctly focused on so let's go to warehouse there's two particular schemes that warehouse was involved in one was a fraudulent billing scheme which was sending rush eats and billing for I mean billing for rush eats when making complete nearly complete boxes there is no legitimate reason for doing that except the fraud secondly there's also no legitimate reason for billing and seed at overpriced rates and then forwarding rebate to bob Jones and the Jones family trust there's no legitimate reason I think I can hide and say a whole bunch of things but there's no legitimate reason for that as regards international paper excuse me international paper has the plant in El Paso what was the false claim against the United States government with respect to warehouse so the false claims are to that I read your complaint I just couldn't find a single false claim okay so so there so there's three one of them is that by and then we'll go and reverse order so by stamping the boxes with NCED stamp which says that these boxes have been made but manufactured by severely handicapped individuals which is a requirement for participating in the program and I'll read you those requirements in a second I understand so so my trouble is on this question my trouble is the same issue that we had in Omnicare which is there is a program that the government's interested in they're interested in this jaywalk program and they require certification for compliance and you get some special relationship with the government but while in that program they build boxes and sell boxes to the government and in connection I could find no place where in connection with submitting a claim for payment right they had to certify that the box complied with jaywalk as a condition of payment and there's no allegation that the bill says that there's no allegation that it's required and I'm not aware obviously I may not know all the corners of the regulations but I'm not aware of any regulation that requires that and in Omnicare we said in that circumstance the government was not there was not a false claim made against the government now there may be but in that case it was a practices that they couldn't conduct their business that they couldn't even manufacture them that way as a matter of fact they were adulterated they found they were adulterated right so they're selling adulterated goods to the government we still didn't find a false claim because the government pays always pays for adulterated goods what they do is there's other sanctions now here right there's a program a congressional program that requires certification to be in the program right but the question is when you are submitting the claim for the boxes was there ever a false claim made in connection with that submission so in theory every claim submitted where it's stamped that it was made by severely disabled individuals was a false claim and the reason being like that's like saying on a package of aspirin that the disclosure let me know you sell the aspirin and they pay for the aspirin and the government pays for it so there's a reason why nc ed was the only one that could provide postal trace to the government and not warehouse or who clearly had the capabilities for making them there's a reason why nc ed could provide the the the boxes the GSA boxes where international paper smurf its own or green they could not and that reason is because right made to the complaint a portion of the complaint where you see where you alleged that a claim was made to the government in connection with the sale of these boxes that was false that any state that was false in connection with the sale of a box and the payment by the government for the box so okay so there's I'll give back to the complaint in a second you want it because I don't have it well you have a memorizing there is an allocation in there that just a conclusion that you made a false claim that you know it but there's a number so first so let's go back to this time there's three there's three there's three so as regards to warehouse in which we're going back to warehouses so first it's the stamping of the boxes saying you know that they were made by handicapped people when they were not so that's one this that is a condition of payment because this condition participating in the program it's not like it's not like does not follow unless there's a regulation or a contractual like unlike unlike you're on an unlike your omnicare situation here the fact that it's a requirement is be lied by what the government actually did to enforce this regulation so first of all it prosecuted criminally the people who defrauded the government didn't it continue to pay for boxes afterwards even after discovering the fraud they continue to pay for boxes and the reason is because this is a program specifically made for providing employment for severely handicapped people so that would be like saying I mean imagine the pink slip dear severely handicapped individuals we are closing your plant and firing you because there's a handful of hand of non handicapped people who committed fraud in your name that would defeat the purpose of the statute you're missing my question all together the statute the J. Wogged statute was violated and they misrepresented and they covered it up and they lied about it and they had kicked backs and everything those guys were prosecuted but the false claim act is under specific act that has specific requirements that say you have to make a false statement in connection with a claim for payment from the government and I'm looking for that and my point is you're just saying it's fraud because they sent bad boxes but that doesn't satisfy the false claim act let's get away from the bad boxes let's talk about the rebate fair enough so where how's it so they're enough well no no no no no I understand just understand I need to find where there was a contractual obligation to make the statements you say number two where there's a regulation or regulation there was a contractual obligation to provide the cost for the boxes the accurate cost for the boxes to the government where's that that's in the in the contracting documents for under J. Wogged so it's a cost plus program so the box the the NCD the contractor provides a government with a list of costs as these are my costs and therefore my margin of gain is x and therefore it was in the I mean it was in there and it was in the briefs especially the original briefs to the but here here's my point so by not providing the government with accurate information as to what the underlying costs of the boxes were i.e. by saying hey bill me higher so I can bill the government high where they contract yes that's put there's that you're on it I don't it's it's in the CFR I don't have the complaint I don't have the the actual language in front of me but that's that is the rebate scheme otherwise there's no reason for the rebates they wouldn't be fraudulent if they didn't have to pass on the cost of the government if they didn't have to pass on the rebates of the government there would have been no reason the statement may be fraudulent but the false claim act requires a false statement to be made to the United States government for the payment of money the false statement was that this box costs x amount when in reality that box did not cost x amount I didn't see that I I even in your proposed second amended complaint in the proposed second amended complaint I understood that that was the part that was the rebate scheme otherwise there's no reason for a rebate scheme to be alleged you on I am done yeah if you have questions I'll wildly continue all right thank you mr. rest it will a adjourned court signing die and then come down and greet counsel

United States Exwell. I'm a I'm a moda versus niche and I guess we have a cast here. Mr. Resta you for here from you first. May I please the court, Martin Estatullio for the appellant Michael Almada. Your honor we're appealing your honors we're appealing to aspects of the lower courts decision. One of them being that the later the relators are the gations are not based on public disclosures which the lower court found and the second one has to do with the mill for admission of the second amended complaint. So your honor first of all the first amended complaint in this action was filed under seal in June 2007. That was the first time that the current defendants were named in this action and at that time the applicable statute regarding public disclosures was 3730 E4. It basically said that no no courts have jurisdiction. There is this action based upon the public disclosures of the allegations or transactions in a criminal civil or administrative hearing in a congressional administrative government counseling. Accounting office report hearing audit or from news media here will be focusing on news media unless the action is brought by the attorney general or the person bringing the action is an original source. Just last month this court applied this same 2006 version of the False Claims Act when evaluating the case filed US X-Roll Ross told their verses on the care ink. It was provided to your to your honors by appellees. So are you conceding that it's the 2006 version of a statute that applies because your brief seemed to have this for this matter and for these purposes your honor it doesn't really matter the 2006 as far as the public disclosure allegations for if we're talking about later when defining knowingly the 2009 version is applicable. I we would argue that the 2009 app version is applicable here. My point is under no scenario was they are public disclosures as to the box manufacturers and if there's no public disclosure it's the same standard whether it be 2006 or 2009. So for example as regards the box manufacturers the appellant the plaintiff had three allegations. One of them was that the defendants in this case were invoicing for raw sheets when they were actually providing complete or nearly complete boxes. Other than this action to date there has never been a public disclosure about that. So there can't be a public this they can't get they can't be a failure to have subject matter jurisdiction for public for public disclosure whether there's no public disclosure. Second allegation in plaintiffs complaint was that the defendants were well I thought in your brief that you you never really argue that the allegations and the complaint were not based on a public disclosure but instead you're focusing on original source. No that was that was sort of the backup there were three allegations. The backup was so first let's let's talk about the panoply of defendants. There are five defendants four box manufacturers one is regarding niche so for the three box manufacturer for the four box manufacturers there were three allegations. Two of them have never been publicly disclosed. One of them it's on defense. There's to that in a second for niche there were public discosures and that's where we're arguing that the plaintiff the related was the original source. Now the defendants here had their argument with niche because there were numerous stories about niche and so that sort of tip the the balance of the argument one way versus the other. But the reality is that when taken into account and you look at all the allegations against all of the defendants the original source as far as him being the source of the of the stories is only one portion of it and he was the source and he was there for the original source but I'd like to sort of lay out the groundwork for the whole scheme so that everybody's on the same page. Where does the requirement of notifying the government about these violations come into play? Did he ever notify the government about it? He did he actually tried to notify the government three times so the first time niche which is a quasi-government office and he understood to be the government he called up niche and said hey there's there's there's there's for I'd be in committed at NCED so niche up until that point he didn't know that niche was in on the scheme so niche rebuffed him and then complained back to NCED saying that you know this guy's causing trouble for you subsequent to that there are but that's not disclosed that's not telling the government that well at that point he understood niche to be the government then the next step may have been he was wrong about that obviously okay then the next step is he told the United States Post Office again another agency which he understood to be the government and finally when all that failed he then spoke to the FBI so on three occasions he actually spoke to the government and no one will deny that the FBI at least is the government and that was prior to filing the complaint so and by the way prior to these public disclosures that are alleged so the third by the way scheme that the box manufacturers alleged that there was some public disclosure is one story all of one story cited in it's in the the joint appeal record as a 205 to 207 the story focuses actually the story focuses on NCED and about how it forms out businesses it mentions only three of the four defendants it only mentions possibly one scheme which is them stamping the boxes with NCED's box manufacturing certificate but it doesn't draw a conclusion one way or the other it specifically leaves out where a house or which is pointing to us the biggest culprit of these and so it that one story which by the way I'll show you in a second he was the original source for cannot be the basis for dismissing all three allegations and subject manager's fiction against all defendants for all three allegations so as regards that one story by the way it was the Oregonian was the first newspaper to arrive in El Paso they were actually drafting a they were investigating a story about executive excessive executive compensation and not for profits various not for profits across the country not specifically NCED not specifically El Paso in fact the story is site excessive compensation for not for profits in Portland Tennessee Texas being one of them as well how would that benefit your plan well let's get so here's what happens what these papers disclose well they they they didn't that's the whole point so what happens is he went by the time the Oregonian arrived in El Paso in 2005 it had been already one year at about one year they arrived in October 2005 and my client was terminated from his employment in July 2004 it already been one year since he discovered the fraud at NCED he told the box manufacturers in particular Green Bay and Smurf its stone hey there's a fraud going on there don't do business with them it had been one year since he complained to niche it had been one year since he complained to the US post office saying hey these guys are committing a fraud so the Oregonian arrives now the Oregonian is talking about exact excessive executive pay in not for profit institutions when they arrive they meet up with with the realtor who says okay listen I can put you in contact with folks that'll talk about that moreover by the way I think the real story is that they're not even complying with the J-Wod program you should check that out the fact is and by the way you should check it out because I think niche is in on it so subsequent to that point parting from that point is when the the Oregonian begins to publish a series of stories now no longer focused on the five or six executives throughout the country that works that were receiving excessive executive pay now of a sudden because they were they received the information from this guy they're now focusing on ncd while that's happening the realtor calls up his friend which is the the local reporter and says hey listen the Oregonian was here a couple of weeks ago they're gonna write a story about ncd I think it's I think it should be reported on by a local newspaper and so David Crowder the latest friend calls it comes in and then he starts publishing stories about ncd and about their violation so to put it back in context one prior to him filing the complaint there was only one public disclosure at best against the box manufacturers secondly to the extent that there was a public disclosure he was the one who informed the Oregonian and the El Paso times about it so the same goes the the timeline begins from there it's the same for niche he put the he uncovered the fraud for all of these folks now so here we go so second you call it a fraud yes I guess the fraud you're talking about is that they are reporting to comply with a program when in fact they're not the fraud is that they're actively certifying to the United States government that they comply with a program that allows them to receive no bid contracts if they comply with the criteria yes that's part of the j-walk program that's exactly right and certifications are done what Sun and you'll hear I assuming analy by so by ncd and then signed off by nish and they file that to say they're complying with the program they file that to say they're complying with the program now it was there any discovery of a false statement made by the company here in connection with getting payment from the government for these five I'm sort of the statement the statement is the annual certification so the answer is so there's twofold so that's not a false claim that's a certification to participate in a program well false claim would have to be the bill that goes to the government so both so so in all I want to focus on that okay and well then this goes back to your discussion on materiality which you guys discussed in the in the previous case so there's two things so one for every bill that ncd submits and for every box did they ever saw any bill he did see bills and do you see a false statement on those bills yeah I mean that's how he knows that they were building for raw sheets when in fact they were getting full boxes but he was only there for six months and a lot of this activity occurred well some of the activity let me finish sorry most of necessarily occurred after he left how could he possibly have seen bills or spoken to people after the fact so so let's go back to that point so the reality is first when you say he was only there for six months this gentleman had been in the box manufacturing industry for 20 years so it wasn't like you know he did not know what that box manufacturing industry was when he came on to ncd ncd he came on as vice president in charge of the cargated division there's only two divisions at ncd when he arrived so there's garments and there's cargated division as part of that he was part of the little handful of management team that oversaw all of the of the services that ncd provided while he was there by the way we're house or was supplying boxes to ncd international paper say an Antonio was supplying boxes to ncd because the plant manager at El Paso refused to provide the fraudulent services that Bob Jones desired and cd and mish was always certifying ncd smurfed stone and green bay were invited to the plant while he was there because he was trying to increase production and he wanted their their input on how he could do that best so after he left and by the way when he came over to ncd he brought his team from smurfed stone so it wasn't like you know he didn't have friends there that he was talking to and so the fact is that after he left he continued to talk to these people so when green bay by the way he approached green bay subsequently leaving and says hey listen they're committing a fraud there I want to start a legitimate business what happens is green bay reports back to ncd and see these starts making boxes with green bay and when he finds out he's already got all the pieces of the puzzle green bay had been there he had been there he knows there's a fraud he tells green bay about the fraud all that needs to happen is that one of his friends says hey by the way Mike green Bay is now making boxes he calls up green Bay at Wisconsin by the way the vice president of green Bay at Wisconsin doesn't just take a call from the janitor of of of ncd so he he is this person in the industry he calls up green Bay in Wisconsin and says hey your guys are committing a fraud by making these boxes that was ignored smurf its stone again he finds out he worked at smurf its stone for 20 years he was part of this president's club he knew everybody at smurf its stone when he finds out smurf its stone is making these boxes he goes to the guys at the plan says you know manny manny louerra you're making boxes oh listen Bob Jones has contacts in Washington don't worry about it we got this taken care of so they too chose to ignore it so I think you know the the allegation that these things happen after he was gone and that somehow you know about it he was already in the mix there was no way for that to happen my red light yeah yeah you're right like you do have some time we'll see you back then I guess we'll hear first from mr. weaver may please the court I'm Robert weaver I am counsel for smurf its stone container and I've been asked to speak on behalf of all the defendants to the issue of whether or not the plaintiff in this case has adequately established his credentials as a original source of the that which was publicly disclosed and it is found in his complaint and mr. Fitzgerald will speak to following me to the question of whether or not the requirements of rule 9 and rule 12 have been met it seems to me that plaintiff is at point now of having to establish himself as an original source under the claims bar test although his brief at paragraph at page 11 says there's no evidence that he relied on any public information and bringing the action the truth is he quotes from a newspaper in his complaint he quotes extensively from the 2010 Lopez trial the court below found that there was a striking similarity between parts of his complaint and actual quotes from the newspaper articles that appeared in the fall of 05 and in the spring of 06 before his initial complaint so we are at the point I believe of him having to establish by a preponderance of evidence that he was the original source of that which is in his complaint I would like to invite the court's attention quickly to three points which I believe either one of which are sufficient to affirm as the district court noted there are several claims in the complaint that appear to come directly out of the newspaper accounts and he has repeatedly failed to rebut that he's been given opportunity after opportunity after opportunity the first affidavit that we saw was in reply to our opposition to his motion to file the second amended complaint it is very generic very plain very unspecific he does not address any of those things that came out of the newspaper in any way that would establish that he had independent knowledge and how he came to it that's number one number two in several of paragraphs in both the affidavit and the complaint he admits that his information is coming from third sources which by law prevents him from having direct and independent knowledge and thirdly there is nothing to establish that he told the government anything at all fraudulent about any of these defendants I understand in his oral argument this morning that he is conceding the point that he does not enjoy the retro activity that that that the amendments to the false claims act to which he's trying to claim entitlement to that they are this court has held that they're not retroactive and I understand that he's abandoning that but it does he's repeatedly says that and it strikes us as that he is he has relied on that aspect substantially in briefing this case on my first point which is public disclosure just an example paragraph 162 of the complaint the complaint is the joint appendix 227 recites three compliance reviews that Nish did this is where Nish goes in and does not an audit but some kind of a compliance review that was reported in the the J.A. 186 the March 6th Oregonian article and the PBS documentary that followed it said that the Oregonian got that through a pre-renewed information that request he has failed to tell us if he has independent knowledge of that what it is and where it came from and we would suggest that the reason is he can't he was gone he was never there when the two first two audits I'm sorry compliance reviews occurred and he was gone when the third one occurred as head of the corrugated box division it is hard to imagine that he would have ever been involved in anything to do with Nish another example paragraph 104 Nish signs off on some of these 404 forms which are disability certifications they don't appear in his first complaint they appear for the first time in the proposed second amended complaint the intervening event was the Lopez trial where these were a big deal and they're at J.A. 514 and 519 lastly on this subject there was an Oregonian article on March 5th the 06 J.A. 145 where it recites that Nish's revenue by the end of 04 had climbed 86% over four years the 58 million annually that appears exactly in his proposed second amended complaint he never tells us if he didn't get it from the Oregonian where he got it his attempts to establish direct an independent knowledge our speculative at best I want to jump to the FBI issue we were before you do that yes talk about the allegations with respect to warehouse because it seems to me that as to that supplier there's some indication in the complaint that the plaintiff was there during the time yes recites these allegations and therefore might possibly qualify as an original source with respect to that's why why is that not the case it is normally the case that in analyzing this issue the court goes to the issue that Judd Hamilton raised which is where in the record does it appear that this was that you've told the government about this so my short answer to you judge D.S. is nowhere and he and I think that kills his claim right there I would acknowledge that this this warehouse are complaint is the first time he comes close to something that he learned on the job that's arguably independent and direct but he misses third base going around to home when he doesn't establish the fact that he told this to the FBI the FBI paragraph's 2023 in the Epidae but at 24 a are very general he says nothing about Nish he says a lot of NCED because that's who he thought was engaged in the fraud that's who he thought was engaged in the fraud and he does not the other thing I would say about where house or is under view you you have got to connect the allegation of misconduct at some point to a specific false claim or presentment which he does not do and so those are my answers to that question also I think Rockwell the Supreme Court case is informative on this because it says joining all claims in one lawsuit even if that one claim could stand alone does not save a complaint that otherwise is deficient under the under the claims part I do want to speak to in the I want to be sure that I speak to the issue that seems to be raised for the first time in the reply brief which is whether or not whether or not fraud was really disclosed about these defendants in the public disclosures that preceded his complaint prints and the Marion County case both speak to this and what they say is the public disclosure must contain allegations or disclosures sufficient to give an inference of fraud and I think it's the plaintiffs view that anything that was said about the box manufacturers was plain vanilla I would just invite the court's attention to one newspaper article J.A. 206th and November 27th El Paso Times article it relies on Jesse Cruz who was still at NCED who said he received boxes from IP smurf at in Green Bay I paused to point out if it's Jesse Cruz that was the original source of that article it's not the plaintiff as he claims to be he wants to be the first domino for the public disclosures but he certainly was not on this the article sites anonymous complaint to the committee for purchase that NCED certifies that it's disabled workforce produces the product but farms out the entire work to smaller firms each of which alters its paperwork Cruz was quoting is saying it's not an isolated instance they've been doing it for years a smurf at spokesman agreed that yes we've been doing it because it's customary and Cruz provided copies of the bills from international paper just that story alone reveals all of the elements of fraud that are in his complaint the NCED was cheating the government by falsifying the labor requirements that they were able to do this by farming out the box manufacturing to the box manufacturing firms and and the box manufacturing firms must have been in on it he says so each firm alters its paperwork accordingly so the right there is a sufficient allegation of fraud in the public record that he has failed to explain why he was why he has independent knowledge of any of that as regards the the niche matter regarding the disclosure to Mrs. Gran miss granite daddy we again would point out that nothing about that was ever said to the FBI and and it's really speculative because what he says there is that he didn't say nishes in on it he infers that nish was in on it after he left employment and after he made that remark to her and then nothing happened it is an inference and under every case that we've read from the force circuit that kind of speculation and inference is inadequate for him to meet his burden the findings below were not clearly erroneous see your knowledge the FBI ever conduct any investigation after the fact after all the newspaper articles came out they did do an investigation your honor and there were indictments convictions and imprisonment for the NCED people what's unusual about this case and why I think it's very similar to the uru is in in the normal key tam case at the time you file your complaint you file a disclosure of all that your independent information at the same time so you could we can see what it was you had the moment you had the complaint but we don't have that here he has just general statements that I met with the FBI and I told him about jaywalk fraud or I told him about schemes so so if the FBI was helped by him it sure doesn't come across in his pleading ask another question before you yes sir sit down you focus in response to my inquiry about where how's about the fact and judge Hamilton raised this issue about the reporting element but I there was evidence in the record was there not that he did speak to FBI agents around 2006 and told him everything he knew about the current defendants that not actually I don't know the quote the quote that I remember is he told them about about all of the defendants everything he knew about all of the defendants in in January of 2006 I said jay five seventy eight I know I wrote that down and I can't find it now he I would suggest if that's what I'm trying to find the exact the exact note but I can't that I made to myself about that I do believe that that is an adequate because what this court has to determine is whether or not under the what is what is valuable about to the government what is valuable to Congress about this claims bar issue is did he advance the ball did he have first ball did he have independent and direct knowledge other than you know the words not from third sources and not from the public sources and did what he say advance the government's interests advance the ball and the only way you can assess that is did you say did you say we're cheating the government we at NCED and and and I have had conversations with these box manufacturers in which I said and here's how we're doing it we're taking your boxes we're passing them off as ours we're taking your invoices converting them to ours and the government doesn't know any better and were he to have said that and shared that with the FBI that would have advanced the ball are what we would urge the court to find on those very few provisions in his affidavit and in the complaint where he speaks about his conversations with the FBI is that they're just too vague thank you all right mr. we've missed it's Gerald may it please the court Matt Fitzgerald to address the additional grounds for affirming the judgment of the district court so they're a handful of these grounds appearing in the briefs but there are two that I'd like to address here first failure to plead fraud with particularity under rule 9b and second a failure of the of materiality under the false claims act and before I address these just briefly to correct a statement made earlier there's no allegation in the events he deals bills to the government now with regard to rule 9b the allegations in this case cover seven years they cover quote hundreds or thousands of alleged false claims to the government different products created by different manufacturers at different times and in fact there are five defendants in this case not one of whom is itself ever alleged to have submitted a false claim for payment to the government well even as even as to ncd he just to let's generalize to statement but then he doesn't allege any agreement among the parties that could amount to that's what your argument is that could amount to a submission causing the false claim to be submitted by a defendants in this case correct your honor and so and in fact the manufacturing defendants which is a handle for referring to the four independent manufacturing companies the term manufacturing defendants is used in the second amended complaint no fewer than 46 times again that's the second amended complaint so his third effort to plead fraud with particularity under rule 9b and that lumping together of the manufacturing defendants essentially it seems to create a hold that looks bigger than the sum of its parts because if you look at the allegations in the specific allegations or the allegations defendant by defendant there are big holds in each one so for instance although there are allegations that the manufacturing defendants gave rebates the manufacturing defendants were told of the fraud at ncd the manufacturing defendants got tours for instance there's no allegation that international paper ever gave a rebate at all there's no allegation that he told any identified person at international paper anything about the fraud there's no allegation that any specific person at international paper even received a tour of the facility and so similarly he's identified warehousing the reply brief identifies warehousing as quote the biggest perpetrator of wrongdoing in the second amended complaint but there is no allegation anywhere in the second-ended complaint that ahumata told warehousing anything about the fraud at ncd he's just got this I told the manufacturing defendants generally so the second point is there's a failure to plausibly plead the element of materiality under the false claims act and the rule that applies here is that in certification cases that is where the bills to the government or the annual certification forms are certifying regulatory compliance the key is that the condition must be a condition of payment by the government not just a condition of compliance with a program like j here the obviously the nob of the fraud is that ncd did not have 75% severely disabled labor that is a condition of participation in the j-wad program not specifically a condition of payment by the government I mean the government here ordered boxes it received the boxes that it ordered this is nothing like the more common false claims act claim where for instance the government ordered a hundred boxes and it got fifty boxes but the bill set a hundred or it got deficient boxes or as frequently happens in the Medicare context it ordered a hundred boxes and there were no boxes here the government ordered the boxes it got the boxes and it paid for the boxes even when it came out that ncd was not in compliance with the j-wad program so to the where the requirements of those contracts I'm now looking at the amicare cases like the arson was there a responsibility to certify with each bill that the boxes comply with j-wad well there's still thing about the contracts in the second amended complaint or the record your honor so based on what it's that you're the regs under submitting bills when you submit a bill do you have to certify that this complies with j-wad I'm not aware of any such requirement your honor and what the regulations actually say is it's 41 CFR 51-4.5 and it addresses what happens when one of these nonprofits falls below 75% it details investigation a chance to defend itself and at the end the risk is expulsion from the program so there isn't the idea that the government would not pay for boxes that are adequate is not supported by the regulations under the j-wad program so finally there was some discussion earlier of what ahumata had told green Bay specifically and so generally under 9b just to bring that back together so they're to respond to his allegation about what he told green Bay first if you look at the allegations about what green Bay is actually alleged to have done there are no specifics whatsoever about any sort of improper billing by green Bay or by smurfing stone for that matter so literally what green Bay and smurfing stone did to allegedly contribute to this fraud was make postal sleeves and sell them to ncd and so by trying to show that they knew and knowingly participated in the fraud by based on what he told them it's Relators burden to show and the minimum standard of knowing is reckless disregard which has generally been described as an aggravated form of gross negligence so the Relator needs to show that based on what he told green Bay and smurfing stone it was an aggravated form of gross negligence for them to simply do business with ncd at all and the complaint does not support that the second one complaints for that claim as to warehouse are given the fact that the later alleges that he gave a tour of the plant to one of warehouse's representatives where he saw according to the Relator the fraud and its full blue correct your owner well first of all a tour on one day of the plant could not possibly have given rise to the inference that ncd was out of compliance with the jayward program and that's because the requirements of the jayward program are for total direct labor 75% severely disabled total direct labor on an annual basis so as a matter of law anyone given day anyone tour of the facility by any one person could not create an inference of knowledge that ncd was out of compliance with jayward additionally I note that there's no detail at all about what was shown in particular on the tours or what the narration or description was of the tours and it doesn't seem a fair inference that the tours were narrated in a way that pointed out the fraud to these businessmen from other companies who whose own companies were not subject to jayward and had no particular reason to know anything about the details of that program so in some the false claims act requires materiality to payment not just to a condition of participation in the program and under rule 9b on the third try the Relator cannot lump four independent companies together 46 times and still get passed rule 9b there no further questions I'll see the rest of my time you mister it's gerald mister rest to all sorry honor back so first I'd like to discuss warehouse or which I think it's the as correctly focused on so let's go to warehouse there's two particular schemes that warehouse was involved in one was a fraudulent billing scheme which was sending rush eats and billing for I mean billing for rush eats when making complete nearly complete boxes there is no legitimate reason for doing that except the fraud secondly there's also no legitimate reason for billing and seed at overpriced rates and then forwarding rebate to bob Jones and the Jones family trust there's no legitimate reason I think I can hide and say a whole bunch of things but there's no legitimate reason for that as regards international paper excuse me international paper has the plant in El Paso what was the false claim against the United States government with respect to warehouse so the false claims are to that I read your complaint I just couldn't find a single false claim okay so so there so there's three one of them is that by and then we'll go and reverse order so by stamping the boxes with NCED stamp which says that these boxes have been made but manufactured by severely handicapped individuals which is a requirement for participating in the program and I'll read you those requirements in a second I understand so so my trouble is on this question my trouble is the same issue that we had in Omnicare which is there is a program that the government's interested in they're interested in this jaywalk program and they require certification for compliance and you get some special relationship with the government but while in that program they build boxes and sell boxes to the government and in connection I could find no place where in connection with submitting a claim for payment right they had to certify that the box complied with jaywalk as a condition of payment and there's no allegation that the bill says that there's no allegation that it's required and I'm not aware obviously I may not know all the corners of the regulations but I'm not aware of any regulation that requires that and in Omnicare we said in that circumstance the government was not there was not a false claim made against the government now there may be but in that case it was a practices that they couldn't conduct their business that they couldn't even manufacture them that way as a matter of fact they were adulterated they found they were adulterated right so they're selling adulterated goods to the government we still didn't find a false claim because the government pays always pays for adulterated goods what they do is there's other sanctions now here right there's a program a congressional program that requires certification to be in the program right but the question is when you are submitting the claim for the boxes was there ever a false claim made in connection with that submission so in theory every claim submitted where it's stamped that it was made by severely disabled individuals was a false claim and the reason being like that's like saying on a package of aspirin that the disclosure let me know you sell the aspirin and they pay for the aspirin and the government pays for it so there's a reason why nc ed was the only one that could provide postal trace to the government and not warehouse or who clearly had the capabilities for making them there's a reason why nc ed could provide the the the boxes the GSA boxes where international paper smurf its own or green they could not and that reason is because right made to the complaint a portion of the complaint where you see where you alleged that a claim was made to the government in connection with the sale of these boxes that was false that any state that was false in connection with the sale of a box and the payment by the government for the box so okay so there's I'll give back to the complaint in a second you want it because I don't have it well you have a memorizing there is an allocation in there that just a conclusion that you made a false claim that you know it but there's a number so first so let's go back to this time there's three there's three there's three so as regards to warehouse in which we're going back to warehouses so first it's the stamping of the boxes saying you know that they were made by handicapped people when they were not so that's one this that is a condition of payment because this condition participating in the program it's not like it's not like does not follow unless there's a regulation or a contractual like unlike unlike you're on an unlike your omnicare situation here the fact that it's a requirement is be lied by what the government actually did to enforce this regulation so first of all it prosecuted criminally the people who defrauded the government didn't it continue to pay for boxes afterwards even after discovering the fraud they continue to pay for boxes and the reason is because this is a program specifically made for providing employment for severely handicapped people so that would be like saying I mean imagine the pink slip dear severely handicapped individuals we are closing your plant and firing you because there's a handful of hand of non handicapped people who committed fraud in your name that would defeat the purpose of the statute you're missing my question all together the statute the J. Wogged statute was violated and they misrepresented and they covered it up and they lied about it and they had kicked backs and everything those guys were prosecuted but the false claim act is under specific act that has specific requirements that say you have to make a false statement in connection with a claim for payment from the government and I'm looking for that and my point is you're just saying it's fraud because they sent bad boxes but that doesn't satisfy the false claim act let's get away from the bad boxes let's talk about the rebate fair enough so where how's it so they're enough well no no no no no I understand just understand I need to find where there was a contractual obligation to make the statements you say number two where there's a regulation or regulation there was a contractual obligation to provide the cost for the boxes the accurate cost for the boxes to the government where's that that's in the in the contracting documents for under J. Wogged so it's a cost plus program so the box the the NCD the contractor provides a government with a list of costs as these are my costs and therefore my margin of gain is x and therefore it was in the I mean it was in there and it was in the briefs especially the original briefs to the but here here's my point so by not providing the government with accurate information as to what the underlying costs of the boxes were i.e. by saying hey bill me higher so I can bill the government high where they contract yes that's put there's that you're on it I don't it's it's in the CFR I don't have the complaint I don't have the the actual language in front of me but that's that is the rebate scheme otherwise there's no reason for the rebates they wouldn't be fraudulent if they didn't have to pass on the cost of the government if they didn't have to pass on the rebates of the government there would have been no reason the statement may be fraudulent but the false claim act requires a false statement to be made to the United States government for the payment of money the false statement was that this box costs x amount when in reality that box did not cost x amount I didn't see that I I even in your proposed second amended complaint in the proposed second amended complaint I understood that that was the part that was the rebate scheme otherwise there's no reason for a rebate scheme to be alleged you on I am done yeah if you have questions I'll wildly continue all right thank you mr. rest it will a adjourned court signing die and then come down and greet counsel

United States Exwell. I'm a I'm a moda versus niche and I guess we have a cast here. Mr. Resta you for here from you first. May I please the court, Martin Estatullio for the appellant Michael Almada. Your honor we're appealing your honors we're appealing to aspects of the lower courts decision. One of them being that the later the relators are the gations are not based on public disclosures which the lower court found and the second one has to do with the mill for admission of the second amended complaint. So your honor first of all the first amended complaint in this action was filed under seal in June 2007. That was the first time that the current defendants were named in this action and at that time the applicable statute regarding public disclosures was 3730 E4. It basically said that no no courts have jurisdiction. There is this action based upon the public disclosures of the allegations or transactions in a criminal civil or administrative hearing in a congressional administrative government counseling. Accounting office report hearing audit or from news media here will be focusing on news media unless the action is brought by the attorney general or the person bringing the action is an original source. Just last month this court applied this same 2006 version of the False Claims Act when evaluating the case filed US X-Roll Ross told their verses on the care ink. It was provided to your to your honors by appellees. So are you conceding that it's the 2006 version of a statute that applies because your brief seemed to have this for this matter and for these purposes your honor it doesn't really matter the 2006 as far as the public disclosure allegations for if we're talking about later when defining knowingly the 2009 version is applicable. I we would argue that the 2009 app version is applicable here. My point is under no scenario was they are public disclosures as to the box manufacturers and if there's no public disclosure it's the same standard whether it be 2006 or 2009. So for example as regards the box manufacturers the appellant the plaintiff had three allegations. One of them was that the defendants in this case were invoicing for raw sheets when they were actually providing complete or nearly complete boxes. Other than this action to date there has never been a public disclosure about that. So there can't be a public this they can't get they can't be a failure to have subject matter jurisdiction for public for public disclosure whether there's no public disclosure. Second allegation in plaintiffs complaint was that the defendants were well I thought in your brief that you you never really argue that the allegations and the complaint were not based on a public disclosure but instead you're focusing on original source. No that was that was sort of the backup there were three allegations. The backup was so first let's let's talk about the panoply of defendants. There are five defendants four box manufacturers one is regarding niche so for the three box manufacturer for the four box manufacturers there were three allegations. Two of them have never been publicly disclosed. One of them it's on defense. There's to that in a second for niche there were public discosures and that's where we're arguing that the plaintiff the related was the original source. Now the defendants here had their argument with niche because there were numerous stories about niche and so that sort of tip the the balance of the argument one way versus the other. But the reality is that when taken into account and you look at all the allegations against all of the defendants the original source as far as him being the source of the of the stories is only one portion of it and he was the source and he was there for the original source but I'd like to sort of lay out the groundwork for the whole scheme so that everybody's on the same page. Where does the requirement of notifying the government about these violations come into play? Did he ever notify the government about it? He did he actually tried to notify the government three times so the first time niche which is a quasi-government office and he understood to be the government he called up niche and said hey there's there's there's there's for I'd be in committed at NCED so niche up until that point he didn't know that niche was in on the scheme so niche rebuffed him and then complained back to NCED saying that you know this guy's causing trouble for you subsequent to that there are but that's not disclosed that's not telling the government that well at that point he understood niche to be the government then the next step may have been he was wrong about that obviously okay then the next step is he told the United States Post Office again another agency which he understood to be the government and finally when all that failed he then spoke to the FBI so on three occasions he actually spoke to the government and no one will deny that the FBI at least is the government and that was prior to filing the complaint so and by the way prior to these public disclosures that are alleged so the third by the way scheme that the box manufacturers alleged that there was some public disclosure is one story all of one story cited in it's in the the joint appeal record as a 205 to 207 the story focuses actually the story focuses on NCED and about how it forms out businesses it mentions only three of the four defendants it only mentions possibly one scheme which is them stamping the boxes with NCED's box manufacturing certificate but it doesn't draw a conclusion one way or the other it specifically leaves out where a house or which is pointing to us the biggest culprit of these and so it that one story which by the way I'll show you in a second he was the original source for cannot be the basis for dismissing all three allegations and subject manager's fiction against all defendants for all three allegations so as regards that one story by the way it was the Oregonian was the first newspaper to arrive in El Paso they were actually drafting a they were investigating a story about executive excessive executive compensation and not for profits various not for profits across the country not specifically NCED not specifically El Paso in fact the story is site excessive compensation for not for profits in Portland Tennessee Texas being one of them as well how would that benefit your plan well let's get so here's what happens what these papers disclose well they they they didn't that's the whole point so what happens is he went by the time the Oregonian arrived in El Paso in 2005 it had been already one year at about one year they arrived in October 2005 and my client was terminated from his employment in July 2004 it already been one year since he discovered the fraud at NCED he told the box manufacturers in particular Green Bay and Smurf its stone hey there's a fraud going on there don't do business with them it had been one year since he complained to niche it had been one year since he complained to the US post office saying hey these guys are committing a fraud so the Oregonian arrives now the Oregonian is talking about exact excessive executive pay in not for profit institutions when they arrive they meet up with with the realtor who says okay listen I can put you in contact with folks that'll talk about that moreover by the way I think the real story is that they're not even complying with the J-Wod program you should check that out the fact is and by the way you should check it out because I think niche is in on it so subsequent to that point parting from that point is when the the Oregonian begins to publish a series of stories now no longer focused on the five or six executives throughout the country that works that were receiving excessive executive pay now of a sudden because they were they received the information from this guy they're now focusing on ncd while that's happening the realtor calls up his friend which is the the local reporter and says hey listen the Oregonian was here a couple of weeks ago they're gonna write a story about ncd I think it's I think it should be reported on by a local newspaper and so David Crowder the latest friend calls it comes in and then he starts publishing stories about ncd and about their violation so to put it back in context one prior to him filing the complaint there was only one public disclosure at best against the box manufacturers secondly to the extent that there was a public disclosure he was the one who informed the Oregonian and the El Paso times about it so the same goes the the timeline begins from there it's the same for niche he put the he uncovered the fraud for all of these folks now so here we go so second you call it a fraud yes I guess the fraud you're talking about is that they are reporting to comply with a program when in fact they're not the fraud is that they're actively certifying to the United States government that they comply with a program that allows them to receive no bid contracts if they comply with the criteria yes that's part of the j-walk program that's exactly right and certifications are done what Sun and you'll hear I assuming analy by so by ncd and then signed off by nish and they file that to say they're complying with the program they file that to say they're complying with the program now it was there any discovery of a false statement made by the company here in connection with getting payment from the government for these five I'm sort of the statement the statement is the annual certification so the answer is so there's twofold so that's not a false claim that's a certification to participate in a program well false claim would have to be the bill that goes to the government so both so so in all I want to focus on that okay and well then this goes back to your discussion on materiality which you guys discussed in the in the previous case so there's two things so one for every bill that ncd submits and for every box did they ever saw any bill he did see bills and do you see a false statement on those bills yeah I mean that's how he knows that they were building for raw sheets when in fact they were getting full boxes but he was only there for six months and a lot of this activity occurred well some of the activity let me finish sorry most of necessarily occurred after he left how could he possibly have seen bills or spoken to people after the fact so so let's go back to that point so the reality is first when you say he was only there for six months this gentleman had been in the box manufacturing industry for 20 years so it wasn't like you know he did not know what that box manufacturing industry was when he came on to ncd ncd he came on as vice president in charge of the cargated division there's only two divisions at ncd when he arrived so there's garments and there's cargated division as part of that he was part of the little handful of management team that oversaw all of the of the services that ncd provided while he was there by the way we're house or was supplying boxes to ncd international paper say an Antonio was supplying boxes to ncd because the plant manager at El Paso refused to provide the fraudulent services that Bob Jones desired and cd and mish was always certifying ncd smurfed stone and green bay were invited to the plant while he was there because he was trying to increase production and he wanted their their input on how he could do that best so after he left and by the way when he came over to ncd he brought his team from smurfed stone so it wasn't like you know he didn't have friends there that he was talking to and so the fact is that after he left he continued to talk to these people so when green bay by the way he approached green bay subsequently leaving and says hey listen they're committing a fraud there I want to start a legitimate business what happens is green bay reports back to ncd and see these starts making boxes with green bay and when he finds out he's already got all the pieces of the puzzle green bay had been there he had been there he knows there's a fraud he tells green bay about the fraud all that needs to happen is that one of his friends says hey by the way Mike green Bay is now making boxes he calls up green Bay at Wisconsin by the way the vice president of green Bay at Wisconsin doesn't just take a call from the janitor of of of ncd so he he is this person in the industry he calls up green Bay in Wisconsin and says hey your guys are committing a fraud by making these boxes that was ignored smurf its stone again he finds out he worked at smurf its stone for 20 years he was part of this president's club he knew everybody at smurf its stone when he finds out smurf its stone is making these boxes he goes to the guys at the plan says you know manny manny louerra you're making boxes oh listen Bob Jones has contacts in Washington don't worry about it we got this taken care of so they too chose to ignore it so I think you know the the allegation that these things happen after he was gone and that somehow you know about it he was already in the mix there was no way for that to happen my red light yeah yeah you're right like you do have some time we'll see you back then I guess we'll hear first from mr. weaver may please the court I'm Robert weaver I am counsel for smurf its stone container and I've been asked to speak on behalf of all the defendants to the issue of whether or not the plaintiff in this case has adequately established his credentials as a original source of the that which was publicly disclosed and it is found in his complaint and mr. Fitzgerald will speak to following me to the question of whether or not the requirements of rule 9 and rule 12 have been met it seems to me that plaintiff is at point now of having to establish himself as an original source under the claims bar test although his brief at paragraph at page 11 says there's no evidence that he relied on any public information and bringing the action the truth is he quotes from a newspaper in his complaint he quotes extensively from the 2010 Lopez trial the court below found that there was a striking similarity between parts of his complaint and actual quotes from the newspaper articles that appeared in the fall of 05 and in the spring of 06 before his initial complaint so we are at the point I believe of him having to establish by a preponderance of evidence that he was the original source of that which is in his complaint I would like to invite the court's attention quickly to three points which I believe either one of which are sufficient to affirm as the district court noted there are several claims in the complaint that appear to come directly out of the newspaper accounts and he has repeatedly failed to rebut that he's been given opportunity after opportunity after opportunity the first affidavit that we saw was in reply to our opposition to his motion to file the second amended complaint it is very generic very plain very unspecific he does not address any of those things that came out of the newspaper in any way that would establish that he had independent knowledge and how he came to it that's number one number two in several of paragraphs in both the affidavit and the complaint he admits that his information is coming from third sources which by law prevents him from having direct and independent knowledge and thirdly there is nothing to establish that he told the government anything at all fraudulent about any of these defendants I understand in his oral argument this morning that he is conceding the point that he does not enjoy the retro activity that that that the amendments to the false claims act to which he's trying to claim entitlement to that they are this court has held that they're not retroactive and I understand that he's abandoning that but it does he's repeatedly says that and it strikes us as that he is he has relied on that aspect substantially in briefing this case on my first point which is public disclosure just an example paragraph 162 of the complaint the complaint is the joint appendix 227 recites three compliance reviews that Nish did this is where Nish goes in and does not an audit but some kind of a compliance review that was reported in the the J.A. 186 the March 6th Oregonian article and the PBS documentary that followed it said that the Oregonian got that through a pre-renewed information that request he has failed to tell us if he has independent knowledge of that what it is and where it came from and we would suggest that the reason is he can't he was gone he was never there when the two first two audits I'm sorry compliance reviews occurred and he was gone when the third one occurred as head of the corrugated box division it is hard to imagine that he would have ever been involved in anything to do with Nish another example paragraph 104 Nish signs off on some of these 404 forms which are disability certifications they don't appear in his first complaint they appear for the first time in the proposed second amended complaint the intervening event was the Lopez trial where these were a big deal and they're at J.A. 514 and 519 lastly on this subject there was an Oregonian article on March 5th the 06 J.A. 145 where it recites that Nish's revenue by the end of 04 had climbed 86% over four years the 58 million annually that appears exactly in his proposed second amended complaint he never tells us if he didn't get it from the Oregonian where he got it his attempts to establish direct an independent knowledge our speculative at best I want to jump to the FBI issue we were before you do that yes talk about the allegations with respect to warehouse because it seems to me that as to that supplier there's some indication in the complaint that the plaintiff was there during the time yes recites these allegations and therefore might possibly qualify as an original source with respect to that's why why is that not the case it is normally the case that in analyzing this issue the court goes to the issue that Judd Hamilton raised which is where in the record does it appear that this was that you've told the government about this so my short answer to you judge D.S. is nowhere and he and I think that kills his claim right there I would acknowledge that this this warehouse are complaint is the first time he comes close to something that he learned on the job that's arguably independent and direct but he misses third base going around to home when he doesn't establish the fact that he told this to the FBI the FBI paragraph's 2023 in the Epidae but at 24 a are very general he says nothing about Nish he says a lot of NCED because that's who he thought was engaged in the fraud that's who he thought was engaged in the fraud and he does not the other thing I would say about where house or is under view you you have got to connect the allegation of misconduct at some point to a specific false claim or presentment which he does not do and so those are my answers to that question also I think Rockwell the Supreme Court case is informative on this because it says joining all claims in one lawsuit even if that one claim could stand alone does not save a complaint that otherwise is deficient under the under the claims part I do want to speak to in the I want to be sure that I speak to the issue that seems to be raised for the first time in the reply brief which is whether or not whether or not fraud was really disclosed about these defendants in the public disclosures that preceded his complaint prints and the Marion County case both speak to this and what they say is the public disclosure must contain allegations or disclosures sufficient to give an inference of fraud and I think it's the plaintiffs view that anything that was said about the box manufacturers was plain vanilla I would just invite the court's attention to one newspaper article J.A. 206th and November 27th El Paso Times article it relies on Jesse Cruz who was still at NCED who said he received boxes from IP smurf at in Green Bay I paused to point out if it's Jesse Cruz that was the original source of that article it's not the plaintiff as he claims to be he wants to be the first domino for the public disclosures but he certainly was not on this the article sites anonymous complaint to the committee for purchase that NCED certifies that it's disabled workforce produces the product but farms out the entire work to smaller firms each of which alters its paperwork Cruz was quoting is saying it's not an isolated instance they've been doing it for years a smurf at spokesman agreed that yes we've been doing it because it's customary and Cruz provided copies of the bills from international paper just that story alone reveals all of the elements of fraud that are in his complaint the NCED was cheating the government by falsifying the labor requirements that they were able to do this by farming out the box manufacturing to the box manufacturing firms and and the box manufacturing firms must have been in on it he says so each firm alters its paperwork accordingly so the right there is a sufficient allegation of fraud in the public record that he has failed to explain why he was why he has independent knowledge of any of that as regards the the niche matter regarding the disclosure to Mrs. Gran miss granite daddy we again would point out that nothing about that was ever said to the FBI and and it's really speculative because what he says there is that he didn't say nishes in on it he infers that nish was in on it after he left employment and after he made that remark to her and then nothing happened it is an inference and under every case that we've read from the force circuit that kind of speculation and inference is inadequate for him to meet his burden the findings below were not clearly erroneous see your knowledge the FBI ever conduct any investigation after the fact after all the newspaper articles came out they did do an investigation your honor and there were indictments convictions and imprisonment for the NCED people what's unusual about this case and why I think it's very similar to the uru is in in the normal key tam case at the time you file your complaint you file a disclosure of all that your independent information at the same time so you could we can see what it was you had the moment you had the complaint but we don't have that here he has just general statements that I met with the FBI and I told him about jaywalk fraud or I told him about schemes so so if the FBI was helped by him it sure doesn't come across in his pleading ask another question before you yes sir sit down you focus in response to my inquiry about where how's about the fact and judge Hamilton raised this issue about the reporting element but I there was evidence in the record was there not that he did speak to FBI agents around 2006 and told him everything he knew about the current defendants that not actually I don't know the quote the quote that I remember is he told them about about all of the defendants everything he knew about all of the defendants in in January of 2006 I said jay five seventy eight I know I wrote that down and I can't find it now he I would suggest if that's what I'm trying to find the exact the exact note but I can't that I made to myself about that I do believe that that is an adequate because what this court has to determine is whether or not under the what is what is valuable about to the government what is valuable to Congress about this claims bar issue is did he advance the ball did he have first ball did he have independent and direct knowledge other than you know the words not from third sources and not from the public sources and did what he say advance the government's interests advance the ball and the only way you can assess that is did you say did you say we're cheating the government we at NCED and and and I have had conversations with these box manufacturers in which I said and here's how we're doing it we're taking your boxes we're passing them off as ours we're taking your invoices converting them to ours and the government doesn't know any better and were he to have said that and shared that with the FBI that would have advanced the ball are what we would urge the court to find on those very few provisions in his affidavit and in the complaint where he speaks about his conversations with the FBI is that they're just too vague thank you all right mr. we've missed it's Gerald may it please the court Matt Fitzgerald to address the additional grounds for affirming the judgment of the district court so they're a handful of these grounds appearing in the briefs but there are two that I'd like to address here first failure to plead fraud with particularity under rule 9b and second a failure of the of materiality under the false claims act and before I address these just briefly to correct a statement made earlier there's no allegation in the events he deals bills to the government now with regard to rule 9b the allegations in this case cover seven years they cover quote hundreds or thousands of alleged false claims to the government different products created by different manufacturers at different times and in fact there are five defendants in this case not one of whom is itself ever alleged to have submitted a false claim for payment to the government well even as even as to ncd he just to let's generalize to statement but then he doesn't allege any agreement among the parties that could amount to that's what your argument is that could amount to a submission causing the false claim to be submitted by a defendants in this case correct your honor and so and in fact the manufacturing defendants which is a handle for referring to the four independent manufacturing companies the term manufacturing defendants is used in the second amended complaint no fewer than 46 times again that's the second amended complaint so his third effort to plead fraud with particularity under rule 9b and that lumping together of the manufacturing defendants essentially it seems to create a hold that looks bigger than the sum of its parts because if you look at the allegations in the specific allegations or the allegations defendant by defendant there are big holds in each one so for instance although there are allegations that the manufacturing defendants gave rebates the manufacturing defendants were told of the fraud at ncd the manufacturing defendants got tours for instance there's no allegation that international paper ever gave a rebate at all there's no allegation that he told any identified person at international paper anything about the fraud there's no allegation that any specific person at international paper even received a tour of the facility and so similarly he's identified warehousing the reply brief identifies warehousing as quote the biggest perpetrator of wrongdoing in the second amended complaint but there is no allegation anywhere in the second-ended complaint that ahumata told warehousing anything about the fraud at ncd he's just got this I told the manufacturing defendants generally so the second point is there's a failure to plausibly plead the element of materiality under the false claims act and the rule that applies here is that in certification cases that is where the bills to the government or the annual certification forms are certifying regulatory compliance the key is that the condition must be a condition of payment by the government not just a condition of compliance with a program like j here the obviously the nob of the fraud is that ncd did not have 75% severely disabled labor that is a condition of participation in the j-wad program not specifically a condition of payment by the government I mean the government here ordered boxes it received the boxes that it ordered this is nothing like the more common false claims act claim where for instance the government ordered a hundred boxes and it got fifty boxes but the bill set a hundred or it got deficient boxes or as frequently happens in the Medicare context it ordered a hundred boxes and there were no boxes here the government ordered the boxes it got the boxes and it paid for the boxes even when it came out that ncd was not in compliance with the j-wad program so to the where the requirements of those contracts I'm now looking at the amicare cases like the arson was there a responsibility to certify with each bill that the boxes comply with j-wad well there's still thing about the contracts in the second amended complaint or the record your honor so based on what it's that you're the regs under submitting bills when you submit a bill do you have to certify that this complies with j-wad I'm not aware of any such requirement your honor and what the regulations actually say is it's 41 CFR 51-4.5 and it addresses what happens when one of these nonprofits falls below 75% it details investigation a chance to defend itself and at the end the risk is expulsion from the program so there isn't the idea that the government would not pay for boxes that are adequate is not supported by the regulations under the j-wad program so finally there was some discussion earlier of what ahumata had told green Bay specifically and so generally under 9b just to bring that back together so they're to respond to his allegation about what he told green Bay first if you look at the allegations about what green Bay is actually alleged to have done there are no specifics whatsoever about any sort of improper billing by green Bay or by smurfing stone for that matter so literally what green Bay and smurfing stone did to allegedly contribute to this fraud was make postal sleeves and sell them to ncd and so by trying to show that they knew and knowingly participated in the fraud by based on what he told them it's Relators burden to show and the minimum standard of knowing is reckless disregard which has generally been described as an aggravated form of gross negligence so the Relator needs to show that based on what he told green Bay and smurfing stone it was an aggravated form of gross negligence for them to simply do business with ncd at all and the complaint does not support that the second one complaints for that claim as to warehouse are given the fact that the later alleges that he gave a tour of the plant to one of warehouse's representatives where he saw according to the Relator the fraud and its full blue correct your owner well first of all a tour on one day of the plant could not possibly have given rise to the inference that ncd was out of compliance with the jayward program and that's because the requirements of the jayward program are for total direct labor 75% severely disabled total direct labor on an annual basis so as a matter of law anyone given day anyone tour of the facility by any one person could not create an inference of knowledge that ncd was out of compliance with jayward additionally I note that there's no detail at all about what was shown in particular on the tours or what the narration or description was of the tours and it doesn't seem a fair inference that the tours were narrated in a way that pointed out the fraud to these businessmen from other companies who whose own companies were not subject to jayward and had no particular reason to know anything about the details of that program so in some the false claims act requires materiality to payment not just to a condition of participation in the program and under rule 9b on the third try the Relator cannot lump four independent companies together 46 times and still get passed rule 9b there no further questions I'll see the rest of my time you mister it's gerald mister rest to all sorry honor back so first I'd like to discuss warehouse or which I think it's the as correctly focused on so let's go to warehouse there's two particular schemes that warehouse was involved in one was a fraudulent billing scheme which was sending rush eats and billing for I mean billing for rush eats when making complete nearly complete boxes there is no legitimate reason for doing that except the fraud secondly there's also no legitimate reason for billing and seed at overpriced rates and then forwarding rebate to bob Jones and the Jones family trust there's no legitimate reason I think I can hide and say a whole bunch of things but there's no legitimate reason for that as regards international paper excuse me international paper has the plant in El Paso what was the false claim against the United States government with respect to warehouse so the false claims are to that I read your complaint I just couldn't find a single false claim okay so so there so there's three one of them is that by and then we'll go and reverse order so by stamping the boxes with NCED stamp which says that these boxes have been made but manufactured by severely handicapped individuals which is a requirement for participating in the program and I'll read you those requirements in a second I understand so so my trouble is on this question my trouble is the same issue that we had in Omnicare which is there is a program that the government's interested in they're interested in this jaywalk program and they require certification for compliance and you get some special relationship with the government but while in that program they build boxes and sell boxes to the government and in connection I could find no place where in connection with submitting a claim for payment right they had to certify that the box complied with jaywalk as a condition of payment and there's no allegation that the bill says that there's no allegation that it's required and I'm not aware obviously I may not know all the corners of the regulations but I'm not aware of any regulation that requires that and in Omnicare we said in that circumstance the government was not there was not a false claim made against the government now there may be but in that case it was a practices that they couldn't conduct their business that they couldn't even manufacture them that way as a matter of fact they were adulterated they found they were adulterated right so they're selling adulterated goods to the government we still didn't find a false claim because the government pays always pays for adulterated goods what they do is there's other sanctions now here right there's a program a congressional program that requires certification to be in the program right but the question is when you are submitting the claim for the boxes was there ever a false claim made in connection with that submission so in theory every claim submitted where it's stamped that it was made by severely disabled individuals was a false claim and the reason being like that's like saying on a package of aspirin that the disclosure let me know you sell the aspirin and they pay for the aspirin and the government pays for it so there's a reason why nc ed was the only one that could provide postal trace to the government and not warehouse or who clearly had the capabilities for making them there's a reason why nc ed could provide the the the boxes the GSA boxes where international paper smurf its own or green they could not and that reason is because right made to the complaint a portion of the complaint where you see where you alleged that a claim was made to the government in connection with the sale of these boxes that was false that any state that was false in connection with the sale of a box and the payment by the government for the box so okay so there's I'll give back to the complaint in a second you want it because I don't have it well you have a memorizing there is an allocation in there that just a conclusion that you made a false claim that you know it but there's a number so first so let's go back to this time there's three there's three there's three so as regards to warehouse in which we're going back to warehouses so first it's the stamping of the boxes saying you know that they were made by handicapped people when they were not so that's one this that is a condition of payment because this condition participating in the program it's not like it's not like does not follow unless there's a regulation or a contractual like unlike unlike you're on an unlike your omnicare situation here the fact that it's a requirement is be lied by what the government actually did to enforce this regulation so first of all it prosecuted criminally the people who defrauded the government didn't it continue to pay for boxes afterwards even after discovering the fraud they continue to pay for boxes and the reason is because this is a program specifically made for providing employment for severely handicapped people so that would be like saying I mean imagine the pink slip dear severely handicapped individuals we are closing your plant and firing you because there's a handful of hand of non handicapped people who committed fraud in your name that would defeat the purpose of the statute you're missing my question all together the statute the J. Wogged statute was violated and they misrepresented and they covered it up and they lied about it and they had kicked backs and everything those guys were prosecuted but the false claim act is under specific act that has specific requirements that say you have to make a false statement in connection with a claim for payment from the government and I'm looking for that and my point is you're just saying it's fraud because they sent bad boxes but that doesn't satisfy the false claim act let's get away from the bad boxes let's talk about the rebate fair enough so where how's it so they're enough well no no no no no I understand just understand I need to find where there was a contractual obligation to make the statements you say number two where there's a regulation or regulation there was a contractual obligation to provide the cost for the boxes the accurate cost for the boxes to the government where's that that's in the in the contracting documents for under J. Wogged so it's a cost plus program so the box the the NCD the contractor provides a government with a list of costs as these are my costs and therefore my margin of gain is x and therefore it was in the I mean it was in there and it was in the briefs especially the original briefs to the but here here's my point so by not providing the government with accurate information as to what the underlying costs of the boxes were i.e. by saying hey bill me higher so I can bill the government high where they contract yes that's put there's that you're on it I don't it's it's in the CFR I don't have the complaint I don't have the the actual language in front of me but that's that is the rebate scheme otherwise there's no reason for the rebates they wouldn't be fraudulent if they didn't have to pass on the cost of the government if they didn't have to pass on the rebates of the government there would have been no reason the statement may be fraudulent but the false claim act requires a false statement to be made to the United States government for the payment of money the false statement was that this box costs x amount when in reality that box did not cost x amount I didn't see that I I even in your proposed second amended complaint in the proposed second amended complaint I understood that that was the part that was the rebate scheme otherwise there's no reason for a rebate scheme to be alleged you on I am done yeah if you have questions I'll wildly continue all right thank you mr. rest it will a adjourned court signing die and then come down and greet counse