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U.S. EX REL. ALCOHOL FOUND. v. KALMANOVITZ CHARITABLE F.

February 26, 2002

UNITED STATES EX REL. ALCOHOL FOUNDATION, INC., PLAINTIFF, — AGAINST — KALMANOVITZ CHARITABLE FOUNDATION, INC., AUSTIN NICHOLS & CO., INC., ANHEUSER-BUSCH, INC., E&J GALLO, INC., FORTUNE BRANDS, INC., BEER INSTITUTE, BERINGER WINE ESTATES HOLDINGS, INC., DISTILLED SPIRITS COUNCIL OF THE U.S., INC., SEAGRAM & SONS, INC., BACARDI-MARTINI, U.S.A., WINE INSTITUTE, DELUCA LIQUOR & WINE, LTD., S&P COMPANY, TODHUNTER INTERNATIONAL, INC., HEINEKEN U.S.A., INC., SOUTHERN WINE & SPIRITS OF AMERICA, INC., AND JOHN DOES TO BE NAMED, DEFENDANTS.


The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.

Alcohol Foundation, Inc. ("Alcohol Foundation") commenced this action by filing a complaint under seal on August 22, 2000, as a relator under the False Claims Act, 31 U.S.C. § 3729-33. Alcohol Foundation claims that the defendants have caused misrepresentations and false and/or fraudulent claims to be presented to the government for the treatment of alcohol-related diseases. Pursuant to 31 U.S.C. § 3730, on February 28, 2001, the Office of the Attorney General for the United States of America (the "Government") notified the Court of its decision not to intervene and suggested that the Court lacked subject matter jurisdiction over the complaint. The Government further requested that, except for the complaint, the record in this action remain under seal permanently. Defendants Kalmanovitz Charitable Foundation, Inc., Austin Nichols & Co., Inc., Anheuser Busch, Inc., E&J Gallo, Inc., Fortune Brands, Inc., Distilled Spirits Council of the U.S., Inc., Seagram & Sons, Inc., Bacardi-Martini, U.S.A., Wine Institute, Deluca Liquor & Wine, Ltd., S&P company, Todhunter International, Inc., Heineken U.S.A., Inc., Southern Wine & Spritis of America, Inc. (collectively "Defendants") have not yet been notified of this action. Thus, now before the Court is a qui tam action filed by Alcohol Foundation, in which the United States will not intervene, and over which this Court has no jurisdiction.

I. BACKGROUND

This action is based on Alcohol Foundation's theory that because the consumption of alcohol can have negative health consequences and because makers and purveyors of alcoholic beverages, such as the Defendants, engage in advertising campaigns, such alcoholic beverage makers and purveyors should be held responsible for the medical costs of treating alcohol-related medical conditions. Alcohol Foundation seeks to show that, by paying the costs of alcohol-related medical treatment, the federal government is being defrauded by Defendants. Under Alcohol Foundation's theory, the inconsistency between the Defendants' advertising slogans and reality constitutes fraud,*fn1 and the medical treatment bills paid by the federal government are the claims at issue. By its submission to the United States (the "Government"), Alcohol Foundation seeks to interest the Government in electing to "`pursue its claim through any alternate remedy available to the Government'" to address its theory. (See Memorandum to United States Attorney on Complaint under 31 U..C. [sic] §§ 3729-3733 of the Federal False Claims Act ("Submission"), at 2 (quoting 31 U.S.C. § 3730 (c)(5)).)

Alcohol Foundation poses a number of "rhetorical" questions,*fn2 culminating in one question that essentially summarizes its position: "Does such a mix of power, money, influence, misleading image and lack of disclosure result in a common law fraud on the federal government, on the state governments, on charities, on insurance, on individuals, and on the public?" (Submission, ¶ 368 (emphasis in original).)

Alcohol Foundation suggests that an affirmative answer to its question is the only logical response. (See Plaintiff's Response (to Government Notice Declining Election and Suggestion of Dismissal) and Request for Relief ("Pl.'s Mem.") at 2.) It further asserts that it has standing to bring this action as a relator under the False Claims Act because of the work it did in researching and compiling scientific and government publications in order to answer its question in the affirmative.

The Government indicated that, after its review of the Submission, it decided not to intervene in the action. (See Notice of Election to Decline Intervention and Suggestion of Dismissal, dated February 28, 2001.) As a non-party, the Government brought the issue of subject matter jurisdiction to the Court's attention by suggestion.

Alcohol Foundation opposed the Government's decision not to elect to intervene, its suggestion that the Court lacks subject matter jurisdiction and its request that the matter remain under seal permanently. (See Pl.'s Mem.) In response, the Court extended the seal period in order to permit Alcohol Foundation to update its disclosure materials. At a conference before the Court on February 4, 2002, Alcohol Foundation updated the Submission to the United States and the Court. Nevertheless, at the February 4, 2002 conference, the United States represented that it would not change its decision not to intervene based on Alcohol Foundation's new submission.

II. DISCUSSION

It is axiomatic that federal courts are of limited jurisdiction; this Court's jurisdiction is defined by the United States Constitution and federal legislation. Accordingly, this Court must police jurisdictional issues promptly and closely. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999) (citing Fed. 12(h)); Lyndonville Savings Bank & Trust Co. v. Lussier, 211 F.3d 697, 700 (2d Cir. 2000) ("[F]ailure of subject matter jurisdiction is not waivable and may be raised at any time by a party or by the court sua sponte.") Creaciones Con Idea, S.A. de C.V. v. Confecciones, S.A. de C.V., 75 F. Supp.2d 279, 280-81 (S.D.N Y 1999) (sua sponte dismissal for lack of subject matter jurisdiction under 28 U.S.C. § 1332.

The False Claims Act defines the jurisdiction of a federal court over qui tam claims. See 31 U.S.C. § 3730. According to 31 U.S.C. § 3730 (e)(4), this Court has no jurisdiction if the information giving rise to the qui tam claim was subject to public disclosure through "a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [General] Accounting Office report, hearing, audit, or investigation, or from the news media" unless the individual bringing suit is the United States Attorney General or qualifies as the "original source" of the information. Id. There is no dispute in this case that the factual information on which Alcohol Foundation bases its qui tam action was gleaned from third parties' published articles.

The Government contends that Alcohol Foundation's allegations were publicly disclosed prior to the commencement of this qui tam action and that Alcohol Foundation is not the original source of the allegations. Alcohol Foundation maintains that while the facts were publically disclosed, the allegation of fraud is entirely new. As Alcohol Foundation explained during oral argument on February 4, 2002, its allegations arise out of the "perspective" that Alcohol Foundation's members obtained by spending hundreds of hours compiling facts into a "mosaic." Thus, the Court must answer the question of whether Alcohol Foundation's efforts transformed itself into an "original source" for purposes of bringing a qui tam action.

To be an original source, the individual must have had "direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the government before filing an action under this section which is based on the information." 31 U.S.C. § 3730 (e)(4)(b). If Alcohol Foundation does not qualify as an "original source" of the information it has submitted to the Government, the court lacks subject matter jurisdiction. In that situation, the court must dismiss the latter pursuant to Fed. R. Civ. P. 12(h).

The decision and analysis of subject matter jurisdiction in Kreindler v. Kreindler, 985 F.2d 1148 (2d Cir. 1993) is binding authority in this case. In Kreindler, the Second Circuit adopted the Third Circuit's reasoning, as expressed in United States Ex. Rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Insurance, 944 F.2d 1149, 1155-56 (3d Cir. 1991), that § 3730(e)(4) was "`designed to preclude qui tam suits based on information that would have been equally available to strangers to the fraud transaction had they chosen to look for it as it was to the relator.'" The relator in Kreindler had obtained pertinent information from discovery material publically disclosed in a separate lawsuit and from its own, "independent investigation." The relator argued that its "independent investigation" gave it subject matter jurisdiction as an "original source." The Second Circuit rejected this argument, and followed the Tenth Circuit's position articulated in United States Ex Rel. Precision Co. v. Koch Industries, 971 F.2d 548, 552-53 (10th Cir. 1992), that a qui tam action cannot be based "`in any part upon publicly disclosed allegations or transactions.'" Accordingly, as Kreindler is understood and applied in this District, to establish itself as an original source:

a qui tam plaintiff must: (1) have direct and independent knowledge of the information on which the allegations are based; (2) have voluntarily provided such information to the government prior to filing suit; and (3) have directly or indirectly been a source to the entity ...

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