UNITED STATES OF AMERICA, ex rel.; ROBERT PRITSKER v. Sodexho, Inc.

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 09-1975
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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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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

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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

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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 terms that 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 also1
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 of1
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 an2
“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 not3
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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