Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-01867/USCOURTS-ca7-15-01867-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 15-1867

UNITED STATES, et al., ex rel. AUGUST BOGINA III,

Plaintiffs-Appellants,

v.

MEDLINE INDUSTRIES, INC., et al.,

Defendants-Appellees.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 11 C 5373 — John J. Tharp, Jr., Judge.

____________________

ARGUED DECEMBER 10, 2015 — DECIDED JANUARY 4, 2016

____________________

Before POSNER, MANION, and SYKES, Circuit Judges.

POSNER, Circuit Judge. This appeal is from the dismissal of 

a suit filed in 2011 under the False Claims Act, 31 U.S.C. 

§§ 3729 et seq., by a private individual named Bogina on behalf of the United States. He seeks a bounty for exposing 

fraud that the defendants, Medline Industries and the Tutera 

Group (and Tutera affiliates unnecessary to discuss), have 

allegedly perpetrated against both the federal government,

see 31 U.S.C. § 3730, and several state governments on 

Case: 15-1867 Document: 51 Filed: 01/04/2016 Pages: 9
2 No. 15-1867

whose behalf Bogina is also suing (they are the “et al.” in the 

caption). He bases federal jurisdiction of the state claims on 

the supplemental jurisdiction of the federal courts. See 31 

U.S.C. § 3732(b); 28 U.S.C. § 1367. The district judge dismissed the federal claims as being too similar to those in a 

prior suit against Medline to authorize Bogina’s suit. The 

judge then relinquished jurisdiction over the state claims to 

the state courts, see 28 U.S.C. § 1367(c); about those claims 

we need say no more.

Medline is a major seller of medical equipment to institutions reimbursed by Medicare and similar federal programs

for part of the price they pay for their medical supplies. The 

Tutera Group is a chain of nursing homes that is a Medline 

customer. Bogina claims to have discovered through his

business associate Michael Tutera, a former member of the 

ownership group of the Tutera Group and brother of one of 

its current principals, that Medline gives bribes and kickbacks to the Tutera Group to induce it to purchase from 

Medline.

We’ll see that Medline has been sued before for engaging

in such conduct, though until the present suit the Tutera 

Group had not been specifically accused of being one of 

Medline’s partners in fraud. Some of the corrupt payments

that Medline has been accused of making are in the form of 

lump-sum cash payments, and thus conventional bribes; 

others are kickbacks—returning some of the purchase price

to the purchaser off book, thus inducing him to buy from 

Medline rather than from a competitor. Whether bribes or

kickbacks, such payments operate as discounts to Medline 

customers, and discounts are normally an innocent means of 

competing. But not discounts in the form of bribes and kickCase: 15-1867 Document: 51 Filed: 01/04/2016 Pages: 9
No. 15-1867 3

backs to government contractors. For then the purchaser of a

discounted item will seek reimbursement from the government of the authorized percentage of the price charged the 

purchaser (Tutera being the purchaser identified by Bogina) 

by the seller (Medline)—including the part of that price that 

the seller rebates to the purchaser. And as a result the government makes inflated reimbursements and medical providers are induced to purchase from the discounting seller

even if substitute products of the same or higher quality are

available at lower prices from other sellers. In submitting

these inflated claims for reimbursement the purchasers also 

falsely certify compliance with federal anti-bribery and antikickback laws.

So suppose the nominal price of a piece of equipment

sold by Medline is $100,000 but Medline kicks back $10,000

to the buyer. The buyer’s cost is only $90,000 but he would 

report it to the government as $100,000 and thus receive a 

greater reimbursement than he was entitled to. That is fraud

and a person (or a firm or other institution) violates the False 

Claims Act if he “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” by 

the government. 31 U.S.C. § 3729(a)(1)(A) (emphasis added).

Bogina contends that at Medline’s behest the Tutera Group 

submitted to the federal government fraudulent claims for 

reimbursement. If this is correct, both the Tutera Group and

Medline defrauded the government.

Bogina is thus suing as a volunteer on behalf of the federal government—a kind of private attorney general—in the 

hope of course of being handsomely compensated if the suit 

succeeds. (We’ll encounter such compensation shortly.) He 

thus is a bounty hunter, and federal law places some obstaCase: 15-1867 Document: 51 Filed: 01/04/2016 Pages: 9
4 No. 15-1867

cles in the path of its bounty hunters. Thus 31 U.S.C. 

§ 3730(e)(4)(A), as it read during the kickback scheme of 

which Bogina accuses the defendants (2003 to 2009), allowed

a private person to bring a false-claims suit on behalf of the 

government “based on public allegations” only if he was “an 

original source of the information.” A 2010 amendment 

changed “based on public allegations” to “if substantially 

the same allegations ... as alleged in the action or claim [had 

been] publicly disclosed.” But this was not a significant 

change, both formulas being aimed at barring “’me too’ private litigation [that] would divert funds from the Treasury” 

to bounty seekers whose efforts had duplicated those of the 

government or an earlier bounty seeker. United States ex rel. 

Goldberg v. Rush University Medical Center, 680 F.3d 933, 934 

(7th Cir. 2012); see also Glaser v. Wound Care Consultants Inc., 

570 F.3d 907, 919–20 (7th Cir. 2009); United States ex rel. Gear 

v. Emergency Medical Associates of Illinois, Inc., 436 F.3d 726, 

729 (7th Cir. 2006). “[P]ublic disclosures bar qui tam actions 

against any defendant who is directly identifiable from the 

public disclosures,” even if not specifically named. Id. (The 

phrase “qui tam” is short for qui tam pro domino rege quam pro 

se ipso in hac parte sequitur, meaning “who [qui] sues in this 

matter for the king as well as [tam] for himself.” The “for 

himself” part is the hoped-for bounty.)

Before the 2010 amendment “original source” was defined as “an individual who has direct and independent 

knowledge of the information on which the allegations [in 

his complaint] are based.” 31 U.S.C. § 3730(e)(4)(B) (1994).

The definition was unsatisfactory, because what “direct”

adds to “independent” as a modifier of “knowledge” is inscrutable. Could “direct” mean that even reliable hearsay 

cannot be deemed a source of knowledge, that it must be 

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No. 15-1867 5

classified as indirect? There is the hint of a positive answer 

in Leveski v. ITT Educational Services, Inc., 719 F.3d 818, 837 

(7th Cir. 2013). (Glaser v. Wound Care Consultants Inc., supra, 

570 F.3d at 921 n. 8, recounts the struggle of other circuits to 

give meaning to “direct.”) Fortunately the 2010 amendment

redefined “original source” to mean “an individual who ...

has knowledge that is independent of and materially adds to 

the publicly disclosed allegations ... and who has voluntarily provided the information to the Government before filing 

an action under this section.” Although this is a considerable 

improvement, Bogina claims to have been an “original 

source” both before and after the change in the statutory 

language; he claims in other words to have fit both definitions.

We incline to the view that because the earlier definition 

is inscrutable as well as skimpier than the current one, the 

current one should be deemed authoritative regardless of 

when a person claiming to be an original source acquired his 

knowledge. “[C]oncerns about retroactive application are 

not implicated when an amendment ... is deemed to clarify 

relevant law rather than effect a substantive change in the 

law.” Middleton v. City of Chicago, 578 F.3d 655, 663 (7th Cir. 

2009) (quoting Piamba Cortes v. American Airlines, Inc., 177 

F.3d 1272, 1283–84 (11th Cir. 1999)). That’s a good description of the amendment to subsection (B) of section 3730(e)(4).

We are mindful of cases that say that because the 2010 

amendment does not state that it is retroactive, the pre-2010 

version of the statute governs conduct that occurred in that 

era while the new version governs only more recent conduct. See e.g., Leveski v. ITT Educational Services, Inc., supra, 

719 F.3d at 828; United States ex rel. Goldberg v. Rush UniversiCase: 15-1867 Document: 51 Filed: 01/04/2016 Pages: 9
6 No. 15-1867

ty Medical Center, supra, 680 F.3d at 934; United States ex rel. 

Baltazar v. Warden, 635 F.3d 866, 867 (7th Cir. 2011). These 

cases take off from a footnote—inapposite to subsection (B), 

however—in Graham County Soil & Water Conservation District v. United States ex rel. Wilson, 559 U.S. 280, 283 n. 1 

(2010), in which the Supreme Court said that the 2010 

amendment of 31 U.S.C. § 3730(e)(4)(A)—the publicdisclosure provision—was not retroactive.

But from the context it is apparent that the Court in Graham County was referring to a substantive change (unlike the 

innocuous change we noted earlier) in subsection (A) made 

by the 2010 amendment—a change to what constitutes a 

“public disclosure.” 31 U.S.C. §§ 3730(e)(4)(A)(i), (ii) (2010). 

Originally subsection (A) had stated: “No court shall have 

jurisdiction over an action under this section based upon the 

public disclosure of allegations or transactions in a criminal, 

civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing,

audit, or investigation ... unless the action is brought by the 

Attorney General or the person bringing the action is an 

original source of the information.” This was changed by the 

amendment to: “The court shall dismiss an action or claim 

under this section, unless opposed by the Government, if 

substantially the same allegations or transactions as alleged 

in the action or claim were publicly disclosed—(i) in a Federal criminal, civil, or administrative hearing in which the 

Government or its agent is a party; (ii) in a congressional, 

Government Accountability Office, or other Federal report, 

hearing, audit, or investigation ... unless the action is 

brought by the Attorney General or the person bringing the 

action is an original source of the information.” In Graham 

County the question was whether the term “administrative 

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No. 15-1867 7

hearing” in the pre-amendment version was limited to a 

federal administrative hearing, and the Court held that it 

was not. The amended statute, however, explicitly limits the 

term to federal administrative hearings—a significant narrowing and clearly a substantive change to which the Court 

properly refused to give retroactive effect.

Our cases, cited above, had not noted that in contrast to 

the substantive change in subsection (A), subsection (B)—the 

provision defining “original source”—needed and received 

clarification in the 2010 amendment; and because that 

amendment, insofar as it alters subsection (B), is a clarifying 

rather than a substantive amendment, it is not subject to a 

retroactivity bar.

Enter now Sean Mason, an employee of Medline who 

had in 2007, four years before Bogina filed the present suit, 

filed a very similar suit, charging Medline with having given 

bribes and kickbacks to purchasers of its medical equipment 

who provided services reimbursed by Medicare and Medicaid. Without admitting liability Medline had settled with 

the government (on whose behalf, of course, the suit had 

been brought) for a whopping $85 million in compensation

(and an additional $6 million in attorneys’ fees), out of 

which the government paid Mason a generous bounty—

$23.4 million.

Bogina claims to have learned from his pal in the Tutera 

Group that the Tutera Group had received kickbacks from 

Medline. Unsurprisingly his complaint is very similar to Mason’s, but he argues that there are three critical differences.

The first is that the Tutera Group was not mentioned in Mason’s complaint, which focused on Medline’s alleged bribery

of and kickbacks to its hospital customers; nursing homes

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(which Mason sometimes called “nursing facilities”) were 

mentioned only in passing—but they were mentioned. Second, the settlement with Mason released the federal government’s civil claims against Medline (that is, terminated 

Medline’s liability in exchange for its paying the government 

pursuant to the terms of the settlement) only for false reports 

submitted to Medicare Part A and Medicaid, while Bogina 

alleges that false reports were also made by Medline customers, such as the Tutera Group, to Medicare Part B, to 

state-funded Medicaid, and to TRICARE (a military healthcare program). Third, Bogina alleges that the fraud is continuing, while Mason’s complaint contained allegations of 

fraud only through 2009, and the Mason settlement released 

claims only through May 31, 2010.

But these differences between the two suits are unimpressive. It was common knowledge that Medline sold to 

nursing homes as well as to hospitals, so if it provided kickbacks to the latter, why not to the former as well? Bogina is 

not allowed to proceed independently if he merely “adds 

details” to what is already known in outline. United States ex 

rel. Goldberg v. Rush University Medical Center, supra, 680 F.3d

at 934. And why offer bribes and kickbacks for products 

whose buyers would be reimbursed for the cost (or part of 

the cost) by Medicare Part A, but not for products covered

by other federal programs? The settlement agreement remarks that “unallowed costs” may have been submitted to 

TRICARE even though TRICARE was not mentioned in the 

release of liability. The government was thus on notice of the 

possibility of a broader bribe-kickback scheme before Bogina 

sued. Had it wanted to broaden the case against Medline beyond the Mason settlement it could have gone after, among 

other Medline customers, nursing-home companies such as 

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No. 15-1867 9

the Tutera Group that received (if Bogina is correct) Medline 

kickbacks. But having settled its claims against Medline for a 

large sum the government may have thought the company

had learned its lesson and would cease providing bribes or 

kickbacks to nursing homes or any other of its customers. 

Moreover, a settlement is a compromise; and it is notable 

that among the claims that the government released as part 

of the Mason settlement were some of the very claims alleged in Bogina’s complaint. Indeed the only significant information that appears in Bogina’s complaint but not in Mason’s is the name “Tutera Group” and references to government health care programs besides Medicare Part A and 

Medicaid. Neither body of information “materially add[ed]

to the publicly disclosed allegations” against Medline—the 

allegations in Mason’s complaint. 

Bogina’s complaint is not saved by its allegations that 

the fraud continues to the present day, because those allegations are “on information and belief.” As we explained in 

another false-claims bounty-hunting case, United States ex rel. 

Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102, 

1105–08 (7th Cir. 2014), it is because a public accusation of 

fraud can do great damage to a firm before the firm is exonerated in litigation (should the accusation prove baseless) 

that Rule 9(b) of the Federal Rules of Civil Procedure requires that “in alleging fraud ... a party must state with particularity the circumstances constituting fraud.” Allegations 

based on “information and belief” thus won’t do in a fraud 

case—for “on information and belief” can mean as little as 

“rumor has it that ... .”

AFFIRMED

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