Military Cigarette Prices Don't Support Fraud Suit
(CN) - Philip Morris should not face claims that it overcharged the U.S. military for cigarettes in violation of the False Claims Act, a federal judge ruled.
Anthony Oliver, CEO of tobacco company Medallion Brands International, had sued Philip Morris in 2008, claiming the Marlboro-maker falsely told the U.S. military that it was offering the lowest price for its cigarettes.
In reality, Philip Morris allegedly routinely sold its cigarettes to affiliates such as Philip Morris International and Philip Morris Duty Free, which resell the cigarettes in foreign markets at prices lower than it offered the military.
The United States declined to intervene in the suit, however, and U.S. District Judge Colleen Kollar-Kotelly dismissed it last week for lack of jurisdiction.
The False Claims Act incentivizes private individuals with inside information to alert the government to fraud in government contracts, but forbids an action based on publicly disclosed information to discourage "opportunistic plaintiffs who have no significant information to contribute of their own."
Oliver's case rests on a Philip Morris USA interoffice memo disclosed in a settlement agreement with the U.S. that identifies the difference between duty-free prices and military tax-free prices.
The memo also states: "PMI [Philip Morris International] Duty-Free list prices are lower than PM USA Military tax-free prices and we frequently receive inquiries from the service headquarters on why they can't purchase tax-free product at these lower prices. Our response is that PM USA is the U.S. federal government's source of product, and we ensure that the product conforms to the proper surgeon general warnings."
Kollary-Kotelly found that Oliver is clearly not the original source of the information. "Although the interoffice memorandum does not reference the reason why the pricing differential is of questionable legality (i.e., the 'most favored customer' certifications), the court agrees with defendant that the 'most favored customer' provisions contained within the AAFES [Army and Air Force Exchange Service] and/or NEXCOM's [Navy Exchange Service Command] General Provisions Publications are legal requirements that the government is presumed to know," she wrote. "After all, they are the government's own requirements." (Parentheses and italics in original.)
Oliver additionally failed to show that he has any direct, firsthand knowledge of the alleged fraud, and "makes no attempt to explain how, exactly, he learned of the alleged price differentials," according to the ruling.