Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca3-09-01975/USCOURTS-ca3-09-01975-0/pdf.json

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

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 09-1975

_____________

UNITED STATES OF AMERICA, ex rel.;

ROBERT PRITSKER

v.

SODEXHO, INC.; ARAMARK CORPORATION; COMPASS GROUP USA, doing

business as Chartwells; SODEXHO AMERICA LLC; SODEXHO MARRIOTT

MANAGEMENT, INC.; SODEXHO MANAGEMENT, INC; ARAMARK

EDUCATIONAL SERVICES, INC.

 

 Robert Pritsker,

 Appellant

On Appeal From the United States District Court 

for the Eastern District of Pennsylvania

(03-cv-6003)

District Judge: Honorable Berle M. Schiller

Argued January 15, 2010

Before: AMBRO, CHAGARES, and STAPLETON, Circuit Judges.

(Filed: February 9, 2010)

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OPINION OF THE COURT

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Case: 09-1975 Document: 003110015683 Page: 1 Date Filed: 02/09/2010
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Harvey Weissbard (Argued)

Amy Luria

Daniel Mee

Friedman, Kaplan, Seiler & Adelman LLP

One Gateway Center, 25th Floor

Newark, NJ 07102

Counsel for Appellant

Stephen A. Cozen (Argued)

George M. Cowen, III

Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103

Jeff A. Lamken

Samuel J. Waldon

Martin V. Totaro

Baker Botts L.L.P.

1299 Pennsylvania Avenue, N.W.

Washington, DC 20004

Counsel for Appellees ARAMARK Corporation and ARAMARK Educational

Services, Inc.

J. William Boland

Jeremy S. Byrum

McGuire Woods LLP

901 East Cary Street

Richmond, VA 23219

John H. Williamson

McGuire Woods LLP

1750 Tysons Boulevard, Suite 1800

McLean, VA 22102

Counsel for Appellee Compass Group USA, Inc.

Harry L. Manion, III

Martin F. Gaynor, III

Jennifer B. Furey

Cooley Manion Jones LLP

21 Custom House Street

Case: 09-1975 Document: 003110015683 Page: 2 Date Filed: 02/09/2010
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Boston, MA 02110

Counsel for Appellees Sodexho, Inc., Sodexho America, LLC, Sodexho Marriott

Management, Inc., and Sodexho Management, Inc.

CHAGARES, Circuit Judge.

Relator Robert Pritzker appeals the District Court’s dismissal of this qui tam action

against defendants Sodexho, Inc., Sodexho America, LLC, Sodexho Marriott

Management, Inc., and Sodexho Management, Inc. (“Sodexho”); ARAMARK

Corporation and Aramark Educational Services, Inc. (“ARAMARK”); and Compass

Group USA, Inc., doing business as Chartwells (“Chartwells”). We will affirm.

I.

Because we write solely for the benefit of the parties, we will only briefly

summarize the essential facts. Pritzker filed this qui tam action by filing a complaint, pro

se, under seal in the District Court for the Eastern District of Pennsylvania on October 30,

2003. He filed an amended complaint, represented by counsel, on August 1, 2007. 

Pritzker alleges that the defendants caused the submission of false claims in connection

with the National School Lunch Program and the School Breakfast Program, in violation

of 31 U.S.C. §§ 3729(a)(1) and 3729(a)(2). These federal school programs are

administered by the Food and Nutrition Service (“FNS”) of the United States Department

of Agrigulture (“USDA”). FNS provides grants to the relevant State Agencies (“SAs”),

who in turn distribute these funds to the School Food Authorities (“SFAs”) responsible

for administering the federal school food programs in individual school districts. Many

Case: 09-1975 Document: 003110015683 Page: 3 Date Filed: 02/09/2010
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SFAs operate their own school food programs, but some SFAs contract with food service

management companies (“FSMCs”) such as the defendants to manage and operate the

lunch and breakfast programs in their school districts.

Pritzker alleges that the defendants caused SFAs and SAs to certify falsely

compliance with the regulations governing the National School Lunch Program and the

School Breakfast Program, in two different ways. First, Pritzker alleges that the

defendants retained rebates and credits they received from their suppliers, in violation of

regulations requiring that costs reimbursed in cost-reimbursable contracts be net of any

rebates or credits (the “rebate claims”). Second, Pritzker alleges that the defendants

purchased food and supplies from higher cost national distributors who offered to pay

rebates and credits rather than from lower cost regional distributors, in violation of

procurement regulations requiring free and open competition (the “procurement claims”). 

Before Pritzker filed his complaint, several government agencies had investigated

the issues underlying the rebate claims. In 1996, the General Accounting Office

published a report on the “Role and Impacts of Private Food Service Companies.” Joint

Appendix (“J.A.”) 125-190 (“1996 GAO Report”). The 1996 GAO Report observed

“[f]ood service contracts vary in their treatment of rebates and discounts received by the

food service company when it purchases food for the food authorities.” J.A. 132. Of the

contracts reviewed for the report, 40 percent did not address rebates or discounts, 37

percent required the FSMCs to pass through rebates and discounts, and 18 percent

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permitted FSMCs to retain rebates and discounts. J.A. 163. 

Beginning in 2001, the USDA’s Office of Inspector General (“OIG”) conducted a

series of audits examining various issues regarding the federal school food programs,

including the retention of rebates by FSMCs. This investigation culminated in an audit

report published April 30, 2002 (the “April 2002 Audit Report”). J.A. 329-370. The

objective of this report was “to determine whether sufficient controls existed to ensure

that management companies complied with program requirements in crediting [SFAs] for

the value of USDA-donated commodities and purchase discounts and rebates.” J.A. 331. 

The report disclosed that:

Two management companies that maintained cost-reimbursable contracts

nationwide profited at the expense of 7 of the 19 [SFAs] we reviewed by

retaining over $280,000 in discounts and rebates they received on purchases

made for their food service operations. To accomplish this, the management

companies amended, eliminated, or ignored terms in the requests for proposal

issued by the [SFAs]. Contrary to FNS regulations, the management

companies were able to include contract termsthat favored them, because FNS

did not mandate specific contract terms and provisions.

. . . 

These 2 management companies contracted with over 18 percent of the 1,648

SFA’s that had management contracts nationwide.

J.A. 332; see also J.A. 340. The results of this April 2002 Audit Report were also

highlighted in a newspaper article, J.A. 363, and congressional testimony, J.A. 432.

In response to these OIG audits, FNS promulgated new regulations explicitly

requiring SFAs to include contract terms prohibiting FSMC retention of rebates and other

credits. See Procurement Requirements for the National School Lunch, School Breakfast

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As an alternative basis for dismissing the rebate claims, the District Court also 1

concluded that Pritzker had failed to allege a false claim, because the regulations did not

clearly prohibit the defendants’ conduct until they were revised in 2007.

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and Special Milk Programs, 69 Fed. Reg. 78340 (Dec. 30, 2004). The proposed rules

were issued in 2004, and the regulations became effective in 2007.

The District Court entered a final order dismissing the complaint on March 6,

2009. The District Court dismissed the rebate claims for lack of subject matter

jurisdiction, holding that the False Claim’s Act jurisdictional bar, 31 U.S.C. § 3730(e)(4),

precluded it from exercising jurisdiction. The court concluded that “critical elements of 1

the Relator’s allegations, indeed, the fraud itself, were public long before Relator filed

suit.” J.A. 16. The “meat and potatoes of the fraud – retention of rebates despite

regulations requiring those rebates to be passed through to the SFAs – was revealed” in

the April 2002 Audit Report, and Pritzker “merely molds this publicly disclosed

regulatory violation into a false certification theory . . . .” Id. The court also held that

Pritzker was not an original source of the information underlying the rebate claims. The

court dismissed the procurement claims for failure to state a claim under Fed. R. Civ.

Proc. 12(b)(6), holding that although the procurement regulations required SFAs to

engage in competitive bidding when contracting with FSMCs, these regulations did not

require competitive bidding in the FSMCs’ subsequent procurement of food and supplies.

Pritzker timely appealed.

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Counsel for Pritzker conceded during oral argument that Pritzker was not an 2

“original source” for purposes of § 3730(e)(4).

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II.

The District Court had jurisdiction, if at all, pursuant to 31 U.S.C. §§ 3730(b)(1)

and 3732(a), and we have jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary

review over the District Court’s dismissal of the rebate claims based on the statute’s

jurisdictional bar, see, e.g., United States ex rel. Dunleavy v. County of Delaware, 123

F.3d 734, 737 (3d Cir. 1997) (citation omitted), and over the District Court’s dismissal of

the procurement claims for failure to state a claim, see, e.g., Umland v. Planco Financial

Services, Inc., 542 F.3d 59, 63-64 (3d Cir. 2008).

III.

Pritzker’s first argument on appeal is that the District Court erred by dismissing the

rebate claims as barred by § 3730(e)(4). The False Claims Act bars qui tam suits where

the fraud has been publicly disclosed in certain enumerated sources prior to the

commencement of the suit, unless the relator was the original source of the information.2

31 U.S.C. § 3730(e)(4). Section 3730(e)(4) provides:

(A) 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 [GAO] report,

hearing, audit, or investigation, or from the news media, unless the action is

brought by the Attorney General or the person bringing the action is an

original source of the information.

(B) For purposes of this paragraph, “original source” means an individual who

has direct and independent knowledge of the information on which the

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The District Court also concluded that, even if the rebate claims were not 3

jurisdictionally barred, Pritzker failed to state a claim because he could establish that the

claims submitted by SAs and SFAs were false or fraudulent. Because we conclude that

the rebate claims are barred by § 3730(e)(4), we do not reach this issue.

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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.

Id.

We hold that the District Court properly dismissed the rebate claims because the

court lacked jurisdiction over these claims pursuant to § 3730(e)(4). We hereby adopt the

careful and detailed analysis employed by Judge Schiller on this issue.3

IV.

Pritzker’s second argument is that the District Court erred by dismissing the

procurement claims for failure to state a claim. The “full and open competition”

regulations apply only to grantees and subgrantees of federal funds, in this case SAs and

SFAs. See 7 C.F.R. §§ 3016.36(a) (requiring that grantees and subgrantees follow the

listed procurement standards), 3016.36(c)(1) (requiring “full and open competition” in all

“procurement transactions”). Pritzker acknowledges that FSMCs are not directly covered

by these regulations but argues that since the defendants procured food and supplies on

behalf of SFAs, the defendants’ failure to employ competitive bidding caused the SFAs to

falsely certify compliance with the regulations. Pritzker cannot, however, identify any

regulation requiring competitive bidding on the part of FSMCs. As the National School

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Lunch Program regulations make clear, an SFA is required to “[a]dhere to the

procurement standards . . . when contracting with the food service management

company.” 7 C.F.R. § 210.16(a)(1) (emphasis added). The SFAs, as subgrantees, are

required to conduct competitive bidding when selecting an FSMC, see 7 C.F.R. §

3016.36(c)(1), but Pritzker cannot identify any authority suggesting that these

procurement regulations reach any deeper into the supply chain. We agree with the

District Court that Pritzker has failed to state a claim with respect to the procurement

claims.

V.

For the foregoing reasons, we will affirm the judgment of the District Court.

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