SUE L. ROBINSON, District Judge.
On November 26, 2012, the law firm of Moore & Company, P.A. ("Moore") filed
Currently before the court is the appearing defendants' motion to dismiss Moore's amended complaint for lack of subject matter jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(1) and for failure to state a claim pursuant to Federal Rules of Civil Procedure 12(b)(6). (D.I.25) This court has jurisdiction pursuant to 28 U.S.C. § 1331 and 31 U.S.C. §§ 3729, 3730(b).
Moore is a professional association of attorneys with its principal office located at 355 Alhambra Circle, Suite 1100, Coral Gables, Florida. (D.I. 23 at ¶ 11)
Majestic Blue and Pacific Breeze (collectively, "the LLCs") are Delaware limited liability corporations with a principal place of business located at 1026 Cabras Highway, Suite 110, Piti, Guam. (Id. at ¶¶ 12-13) The LLCs own, respectively, two fishing vessels, the Majestic Blue and the Pacific Breeze. (Id.) Dongwon is a South Korean corporation with its principle place of business at 275 Yanglae-Dong, Seocho-gu, Seoul, South Korea. (Id. at ¶ 14) Dongwon is in the business of buying, processing, and selling tuna and tuna products, and was the owner of the Majestic Blue and the Pacific Breeze vessels (collectively, "the vessels") (previously named the Eastern Kim and the Costa de Marfil) prior to 2008. (Id. at ¶¶ 26-27)
Jayne Kim is a Korean-born, U.S. naturalized citizen who currently resides in Korea. (Id. at ¶ 16) Joyce Kim is a Korean-born, U.S. naturalized citizen who currently resides in California. (Id. at ¶ 17) Jayne Kim and Joyce Kim are sisters, and both are daughters of Jaewoong Kim. (Id. at ¶¶ 16-17) Jayne Kim is the majority shareholder and president of Majestic Blue and the minority shareholder and treasurer of Pacific Breeze. (Id. at ¶ 16) Joyce Kim is the majority shareholder and president of Pacific Breeze and the minority
Jaewoong Kim is a citizen of and resides in South Korea. (Id. at ¶ 15) He is the father of Jayne Kim and Joyce Kim, and the brother of J.C. Kim, Dongwon's chairman. (Id.) Jaewoong Kim is also a former executive of Dongwon. (Id.)
Under the South Pacific Tuna Treaty ("SPTT"), the United States provides approximately $18 million in economic assistance annually to the Foreign Fisheries Association ("FFA"), an international body designated as the "administrator" of the SPTT. (Id. at ¶¶ 29, 31-32) This money is allocated to the Pacific island nations that are signatories to the treaty. (Id. at ¶ 32) In return, the SPTT provides for a certain number of fishing licenses to be issued to U.S. fishing vessels, permitting them to fish for tuna in exclusive zones in the South Pacific, "some of the most tuna rich waters in the world." (Id. at ¶¶ 29-30) South Korea is not a signatory to the SPTT. (Id. at ¶ 30)
To qualify for a SPTT license, a fishing vessel needs a United States Coast Guard (USCG) Certificate of Documentation with a registry endorsement. (Id. at ¶ 33) This certification is only available to vessels "under the ownership and control of U.S. citizens." (Id.) The license applications are submitted to the National Marine Fisheries Service and are issued by the FFA. (Id. at ¶ 31)
On March 25, 2008, Joyce Kim and Jayne Kim founded and registered Majestic Blue and Pacific Breeze. (Id. at ¶ 36) Jayne Kim owns 51% of Majestic Blue and 49% of Pacific Breeze, while Joyce Kim owns 51% of Pacific Breeze and 49% of Majestic Blue. (Id. at ¶ 43) There are no other purported owners or shareholders in the LLCs. (Id.) Moore alleges that Joyce Kim and Jayne Kim each only invested $50 in the LLCs with no further investment. (Id. at ¶ 37)
On April 23, 2008, Dongwon executed bills of sale that allegedly sold the vessels to Majestic Blue and Pacific Breeze, respectively, for $10 each. (Id. at ¶ 41) In the original purchase and sale agreement executed by Dongwon, the LLCs agreed to pay $4.4 million for each vessel. The agreement did not hold Joyce Kim or Jayne Kim responsible for the debt and no mortgage was taken out on the vessels. (Id. at ¶ 38) Moore alleges that this arrangement occurred because Dongwon never actually gave up ownership or control of the vessels; instead, Dongwon used Joyce Kim and Jayne Kim as "straw owners" of the LLCs because of their American citizenship. (Id. at ¶¶ 28, 39)
After transferring ownership of the vessels to the LLCs, the LLCs applied for FFA fishing licenses to fish for tuna in the waters covered by the SPTT. (Id. at ¶¶ 48-53) In April and May 2008, William Phil, a purported manager of the LLCs, sent emails to the National Oceanic and Atmospheric Administration ("NOAA") seeking SPTT licenses. (Id. at ¶ 49) Moore alleges that William Phil was not a manager of the LLCs, but "is actually a pseudonym for three Korean nationals who are also employees of Dongwon who operated under the false name in order to sound more like an American citizen." (Id. at ¶ 50) Moore further alleges that neither Joyce Kim nor the general manager of the LLCs, Jurgen Unterberg ("Unterberg"), knew who William Phil was though both believed he was the manager of the LLCs, reinforcing Dongwon's control over the LLCs "to the exclusion" of
On May 15, 2008, Jayne Kim and Joyce Kim, on behalf of the LLCs, submitted initial applications for U.S. documentation for the fishing vessels. (Id. at ¶ 51) The applications certified that within the LLCs, "non-citizens do not have authority within a management group, whether through veto power, combined voting, or otherwise, to exercise control over the LLC." (Id. at ¶ 52) Moore alleges that this certification was a "misrepresentation" of the actual control of the LLCs, and that the LLCs were actually controlled by Dongwon, a foreign corporation. (Id. at ¶ 53) On May 20, 2008, the National Vessel Documentation Center granted temporary U.S. documentation for the vessels. (Id.)
On May 21, 2008, the LLCs signed agreements with Dongwon for crew manning; ship maintenance, supply, and insurance; and tuna supply. (Id. at ¶ 54) Moore alleges that these agreements authorize Dongwon to exercise complete control over the vessels and the LLCs. (Id. at ¶¶ 54, 67-71) Furthermore, Moore alleges that Dongwon exercised control over the vessels beyond these agreements by controlling the employment of American captains, who were necessary to maintain the facade of American control but did not exert any actual control. (Id. at ¶¶ 72-87)
On July 1, 2008, the FFA issued certificates of registration for the vessels, allowing them to fish in SPTT waters under the U.S. flag. (Id. at ¶ 60) Moore alleges that the grant of the FFA licenses was based on false statements in the application indicating American control of the LLCs and vessels, when in fact both were controlled by Dongwon. (Id.) Moore alleges that this "fraud" continues through today, as the Pacific Breeze vessel continues to fish in the SPTT-protected waters under the U.S. flag.
In December 2008, Captain John Jeskevicius ("Jeskevicius"), captain of the Majestic Blue vessel, realized that the crew onboard the ship was illegally dumping trash over the side of the vessel. (Id. at ¶¶ 92-95) Through December 2008, Jeskevicius reported the illegal activity to Unterberg multiple times via email. (Id. at ¶¶ 95-98, 100) On December 27, 2008, Jeskevicius resigned as captain, allegedly because of the illegal garbage dumping. (Id. at ¶ 99) In fall 2009, Captain Doug Pine ("Pine"), the next captain of the Majestic Blue vessel, also observed illegal dumping (Id. at ¶¶ 102-05) Despite having knowledge of this illegal activity, defendants allegedly did nothing to change the Majestic Blue vessel's policies or otherwise stop the dumping from occurring. (Id. at ¶ 106) Hill, the last captain of the Majestic Blue vessel before it sank, observed illegal dumping as well. (Id. at ¶¶ 106-09) Moore alleges that "[Hill] and other crew members knew about the dumping but intentionally did not report it." (Id. at ¶ 108) Hill allegedly told Unterberg, but Moore alleges that Unterberg had no authority within Majestic Blue to address the problem himself. (Id. at ¶ 109)
Not only may the lack of subject matter jurisdiction be raised at any time, it cannot be waived and the court is obliged to address the issue on its own motion. See Moodie v. Fed. Reserve Bank of N.Y., 58 F.3d 879, 882 (2d Cir.1995). Once jurisdiction is challenged, the party asserting subject matter jurisdiction has the burden of proving its existence. See Carpet Group Int'l v. Oriental Rug Importers Ass'n, Inc., 227 F.3d 62, 69 (3d Cir.2000).
Under Rule 12(b)(1), the court's jurisdiction may be challenged either facially (based on the legal sufficiency of the claim) or factually (based on the sufficiency of jurisdictional fact). See 2 James W. Moore, Moore's Federal Practice § 12.30[4] (3d ed.1997). Under a facial challenge to jurisdiction, the court must accept as true the allegations contained in the complaint. See id. Dismissal for a facial challenge to jurisdiction is "proper only when the claim `clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or ... is wholly insubstantial and frivolous.'" Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1408-09 (3d Cir.1991) (quoting Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946)).
Under a factual attack, however, the court is not "confine[d] to allegations in the ... complaint, but [can] consider affidavits, depositions, and testimony to resolve factual issues bearing on jurisdiction." Gotha v. United States, 115 F.3d 176, 179 (3d Cir.1997); see also Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891-92 (3d Cir.1977). In such a situation, "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Carpet Group, 227 F.3d at 69 (quoting Mortensen, 549 F.2d at 891).
The False Claims Act ("FCA") creates liability for any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" to the government. 31 U.S.C. § 3729(a)(1)(A). The FCA seeks "to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits." Graham Cnty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 281, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010). Prior to the Patient Protection and Affordable Care Act ("PPACA") legislation, enacted on March 23, 2010,
The amended FCA provides in part:
31 U.S.C. § 3730(e)(4)(A) & (B) ("amended FCA").
The parties disagree over which version of the statute applies to the claims at bar. The Supreme Court in Graham County explained that "[t]he legislation makes no mention of retroactivity, which would be necessary for its application to pending cases given that it eliminates petitioners' claimed defense to a qui tarn suit." Graham County, 559 U.S. at 281, 283 n. 1, 130 S.Ct. 1396 (citing Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 948, 117 S.Ct. 1871, 138 L.Ed.2d 135 (1997)); see also, United States ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 232 n. 3 (3d Cir.2013) (applying pre-amendment public disclosure bar to a matter which was pending before the amendment). In Hughes, the Supreme Court addressed whether an amendment controls when it becomes effective before a suit was commenced, noting that "the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place ...." Hughes, 520 U.S. 939, 946, 117 S.Ct. 1871 (citing Landgraf v. USI Film Products, 511 U.S. 244, 265, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994)). The Supreme Court concluded that "[g]iven the absence of a clear statutory expression of congressional intent to apply the ... amendment to conduct completed before its enactment, we apply our presumption against retroactivity ...." Id. at 952, 117 S.Ct. 1871.
The case at bar was filed after the PPACA amendment took effect and involves continuing conduct, both before and after the PPACA amendment. Based on the reasoning of the Supreme Court discussed above, the court applies the pre-PPACA FCA to pre-amendment conduct and the amended FCA
To determine if the pre-PPACA FCA public disclosure provision applies to bar a
United States ex rel. Atkinson v. Pa. Shipbuilding Co., 473 F.3d 506, 519 (3d Cir. 2007). Appearing defendants argue that the allegations in the amended complaint were disclosed (1) "as early as 2009 through several news media articles, postings, and podcasts on internet websites" (D.I. 26 at 9-10 & n.6); (2) "multiple publicly disclosed government reports," obtained by Moore through Freedom of Information Act ("FOIA") requests, dated July 3, 2010 and April 19, 2011; and (3) prior civil litigation.
The "sources of public disclosure in § 3730(e)(4)(A), especially `news media,' suggest that the public disclosure bar provides `a broa[d] sweep.'" Schindler Elevator Corp. v. U.S. ex rel. Kirk, ___ U.S. ___, 131 S.Ct. 1885, 1891, 179 L.Ed.2d 825 (2011) (citing Graham County, 559 U.S. at 290, 130 S.Ct. 1396). While traditional news sources (including internet sources) constitute news media, the question in "public disclosure" cases is whether a disclosure on a particular website constitutes a "public disclosure" for the purposes of the FCA. United States ex rel. Repko v. Guthrie Clinic, P.C., 2011 WL 3875987, at *7 (M.D.Pa. Sept. 1, 2011), affirmed by United States ex rel. Repko v. Guthrie Clinic, P.C., 490 Fed.Appx. 502, 504 (3d Cir.2012). In Repko, the district court noted:
Id. at *7. The court concluded that the four websites at issue in that case publically disclosed the information contained therein: a website which worked to "gather and publicize information about non-profit organizations;" one which billed itself as "the leading source of information about philanthropy worldwide," which contained a comprehensive database; information for investors on the Standard & Poors website; and the Bloomberg Professional website which "provid[ed] access to all the news, analytics, communications, charts, liquidity, functionality and execution services" to assist investors. Id. at *8. In United States ex rel. Simpson v. Bayer Corp., 2013 WL 4710587 (D.N.J. Aug. 30, 2013), the court stated "while it is certainly the case that websites may constitute news media in certain instances, not everything posted on the internet qualifies." Id. at *7. Using a case-by-case framework, the court concluded that,
Id.
In the case at bar, appearing defendants allege that the information posted on the following websites are public disclosures: an interview with former Captain Pine posted on CNN's website, "iReport.com," on October 28 2009 ("Pine recording") (D.I. 29, ex. A, B, G); a related article "Mutiny on American Ship, first in over 30 years," dated October 27, 2009, posted on iReport.com ("Mutiny article") (id., ex. B); reproductions of the Pine recording and Mutiny article on other blogs (id., ex. C, E-G); an article "Flogging and Mutiny in the 21st Century, Proudly Waving the Stars and Stripes," dated October 22, 2009, posted on maritimeaccident.org ("Maritime Accident article") (id., ex. C, D); a blog posting at bitterendblog.com ("BitterEnd blog post") (id., ex. H); and an article "Coast Guard Probes Island Mariner's Account of Fiasco at Sea," posted on vashonbeachcomber.com, dated November 17, 2009 ("Beachcomber article") (id., ex. I). Moore challenges the consideration of the Pine recording as a public disclosure. While "iReport.com" is arguably part of CNN's website, the website is a "community forum" and contains the disclaimer: "Stories submitted to CNN iReport are not edited, fact-checked or screened before they post. So we mark all iReports with the label `NOT VETTED BY CNN' to let you know that this story hasn't been both checked and cleared by a CNN editor." The court concludes that the postings on the iReport website are not "news media" in the context of the FCA. Similarly, the blog postings (e.g., BitterEnd blog and Sea Fever blog) are not "news media."
The Maritime Accident and Beachcomber articles
(D.I.27, ex. C)
Analyzing the pre-PPACA FCA, the Supreme Court concluded that a "written agency response to a FOIA request falls within the ordinary meaning of `report.'" Schindler, 131 S.Ct. at 1893. The Supreme Court explained that "[s]uch an agency response plainly is `something that gives information,' a `notification,' and an `official or formal statement of facts.'" Id. Moreover, "[a]ny records the agency produces along with its written FOIA response are part of the response...." Id. The Supreme Court has described "a classic example of the `opportunistic' litigation that the public disclosure bar is designed to discourage" as a lawsuit filed after reviewing FOIA requests or "identify[ing] a few regulatory filing and certification requirements, submit[ing] FOIA requests until ... discover[ing] a federal contractor who is out of compliance, and potentially reap[ing] a windfall in a qui tarn action under the FCA." Id. at 1894. In U.S. ex rel. Kraxberger v. Kansas City Power and Light Co., 756 F.3d 1075 (8th Cir.2014), the Eight Circuit applied the reasoning in Shindler to the amended FCA, finding that "documents disclosed by [the General Services Administration] in response to counsel's FOIA request qualify as public disclosure under Schindler." Id. at 1079. This court agrees. The amended FCA did not substantially change "report" as a public disclosure, therefore, the responses to the FOIA requests qualify as public disclosures under both versions of the FCA.
The responses to the FOIA provided the following pertinent factual information: The certificates of vessel's nationality and sale documents evidence that Dongwon owned the vessels and the purchase price was $4.4 million. The bill of sale lists the amount paid as $10. (D.I 23, exs. 2, 6, 7) The signed certificates of documentation for the vessels aver that the persons who manage the LLCs "are citizens of the United States; and non-citizens do not have authority within a management group, whether through veto power, combined voting, or otherwise, to exercise control over the LLC." (Id., ex. 8) Accompanying the FOIA responses were emails including the following: (1) an email from Raymond Clarke (with the NOAA) to Eric Dila (with the USCG) regarding vessel insurance, where Clarke appears to question the documentation of the vessels as U.S. vessels (id., ex. 12);
The disclosures in the civil litigation
A transaction warranting an inference of fraud is one that is composed of a misrepresented state of facts plus the actual state of facts." Zizic, 728 F.3d at 236 (citing United States ex rel. Dunleavy v. Cnty. of Del., 123 F.3d 734, 741 (3d Cir.1997), abrogated on other grounds by Graham County, 559 U.S. 280, 130 S.Ct. 1396). The Third Circuit has adopted the following formula to determine whether information publicly disclosed in a specified source qualifies as an allegation or transaction of fraud:
Id. (quoting Dunleavy, 123 F.3d at 741). The essential elements of the allegation of fraud [Z] are "a misrepresented [X] and a true [Y] state of facts." Atkinson, 473 F.3d at 519 (citation omitted). The public disclosure bar applies "if either Z (fraud) or both X (misrepresented facts) and Y (true facts) are [publicly] disclosed by way of a listed source." Id.
Moore alleges that defendants fraudulently obtained USCG certificates of documentation in order to request fishing licenses from the government. The certificates of documentation require compliance with the citizenship requirement and that non-citizens do not exercise control over the owning entity. Defendants continue the fraud by "renewing their U.S. Documentation by recertifying (falsely) each year that the LLCs were not controlled by non-U.S. Citizens; and by yearly presenting
The court must finally "decide `whether the relator's complaint is based on those [public] disclosures.' To be based on allegations or transactions of fraud, claims need not be `actually derived from' public disclosures. Rather, claims need only be `supported by' or `substantially similar to' public disclosures." Zizic, 728 F.3d at 237 (citations omitted). "[T]he public disclosure bar is not confined to actions `solely based upon' public disclosures. Instead, the public disclosure bar covers actions simply `based upon' public disclosures, including actions `even partly based upon' such allegations or transactions." Id. at 238 (citations omitted). As the Third Circuit describes "based on" as including claims "substantially similar" to public disclosures, such analysis applies to either version of the FCA. Comparing the claims to the public disclosures, the amended complaint is based on the public disclosures (either the combination of the articles and the FOIA responses or the combination of all three disclosures). Therefore, under both versions of the FCA, Moore's claims must be dismissed.
Although the conduct is based on public disclosures, Moore's claim survives if Moore is an original source. The Third Circuit explained that,
Atkinson, 473 F.3d at 520.
Moore concedes that certain of its information was uncovered during its representation of Captain Hill in the wrongful death litigation. Moore's declaration filed with its brief evidences that the essential elements of the fraud were substantiated by depositions and discovery in the civil litigations. (D.I.29, ex.1) The Third Circuit has explained that a relator is not an "original source" when the relator's information was obtained through discovery during the course of representing a client in an action. United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160-61 (3d Cir.1991). Moore alleges in a conclusory fashion that "it was only after more than two years of its own investigation that [it] had gathered sufficient information and evidence to file this action...." (D.I. 29 at 1) The declaration provides that certain information was "independently obtained" by Moore demonstrating: Dongwon's control over the vessels, employees, captains, and violations;
The definition of "original source" in the amended FCA differs from the pre-PPACA version, requiring "knowledge that is independent of
Atkinson, 473 F.3d at 522 (citations omitted).
In the case at bar, the information regarding the purchase of the vessels and formation of the LLCs is disclosed in the FOIA responses. The inference of "paper captain" is disclosed by the articles. As discussed above, the allegedly "independent" information, which Moore relies upon to "materially add" to the public disclosures, are duplicative of the information in the litigation documents. While these documents may not qualify as public disclosures under the amended FCA, such documents are in the public domain and not "obscure." See also, Zizic, 728 F.3d at 240 (holding that a relator who merely applies his expertise to publically disclosed information does not have independent knowledge). The court concludes Moore is not an original source under the amended FCA.
For the aforementioned reasons, the court grants appearing defendants' motion to dismiss the amended complaint.
At Wilmington this 23rd day of September, 2014, consistent with the memorandum opinion issued this same date;
IT IS ORDERED that appearing defendants' motion to dismiss (D.I.25) is granted and the case closed.
