Appendix — United States ex rel. Sequoia Orange Co. v. Sunkist Growers, Inc.
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APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
DECIDED JUNE 19, 1998
UNITED STATES of America, Ex Rel., SEQUOIA
ORANGE COMPANY; Lisle Babcock,
Plaintiffs-Appellants,
Vv.
STRATHMORE PACKING HOUSE COMPANY;
Millwood Packing Inc.;
Blue Banner Company Inc.; Ventura County Fruit
Growers, Inc.; Limonera Company,
Defendants-Appellees.
Kendall L. Nanock, Fresno, California, for Grand View
defendants-appellees.
No. 96-15024.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Oct. 7, 1997.
Decided June 19, 1998.
* a *
Appeal from the United States District Court for the Eastern
District of California; Oliver W. Wanger,
District Judge, Presiding.
Before: SNEED, SCHROEDER and BRUNETTI, Circuit
Judges.
SCHROEDER, Circuit Judge:
2a
Appendix A
This is a qui tam case under the False Claims Act (FCA).
One citrus company seeks damages from other citrus
companies, claiming that they made false statements to the
government in connection with a citrus marketing program. The
government intervened several years after the litigation began
and sought dismissal under 31 U.S.C. § 3730(c)(2)(A) because
it had decided to abandon the entire marketing program. The
case must be seen against the background of a war in the citrus
industry related to the administration of that program. The
district court granted the government’s motion to dismiss,
finding that the government’s decision to end that war on all
fronts, including dismissal of the qui tam claims, was rationally
related to a legitimate governmental purpose. See United States
ex rel. Sequoia Orange Co. v. Sunland Packing House Co.,
912 F.Supp. 1325 (E.D.Cal.1995).
The qui tam relators appeal contending that because the
false claims actions had some merit, the government cannot
seek dismissal. The appeal thus requires us to consider what
standard a court should apply when considering the
government’s motion to dismiss a qui tam action that otherwise
would not be dismissed before the litigation was fully resolved.
We affirm.
BACKGROUND
Sequoia Orange Company (an orange processor) and Lisle
Babcock (an orange grower) filed 34 qui tam actions against a
number of citrus industry growers and packinghouses alleging
violations of the orange and lemon marketing orders
promulgated by the Secretary of Agriculture pursuant to the
Agricultural Marketing Agreement Act of 1937 (AMAA), 7
U.S.C. §§ 601-626. The relators began filing the actions in 1988.
3a
Appendix A
The AMAA “authorizes the Secretary of Agriculture to
issue marketing orders limiting the quantity of commodities
shipped into markets identified by the Secretary, thus protecting
prices for producers and maintaining orderly marketing
conditions.” Cecelia Packing Corp. v. USDA, 10 F.3d 616, 618
(9th Cir.1993). The Secretary in 1984 had issued orange and
lemon marketing orders that regulated the quantity of oranges
and lemons shipped to market by citrus handlers in Arizona
and California. See 7 U.S.C. § 608c; 7 C.F.R. §§ 907.1, 908.1,
910.1 (1994). Citrus handlers who ship oranges and lemons in
excess of their allotment (“prorate”) are subject to criminal fines
and civil penalties. See 7 U.S.C. §§ 608a(5), 608c(14).
The qui tam relators alleged that the defendants had, over
the course of approximately ten years, violated the prorate
provisions of the orange and lemon marketing orders by over-
shipping citrus and failing accurately to report, account and
pay assessments for those overshipments. Prior to the expiration
of the 60-day seal period, see 31 U.S.C. § 3730(b)(2), the
government elected to intervene in 10 of the qui tam cases.
As the relators were filing their qui tam complaints, the
government was also filing prorate violation claims under the
AMAA against citrus industry growers and packinghouses,
including Sequoia Orange Company. After discovering growing
evidence of widespread prorate violations in the industry, the
Secretary concluded that the prorate cheating reflected
dissatisfaction with the citrus marketing orders, and that the
orders had become divisive. In June 1993 the Secretary formally
suspended orange and lemon prorate regulation and invited the
citrus industry to propose amendments to the marketing orders.
Simultaneously, the government proposed a settlement of
all AMAA and FCA cases alleging prorate violations in order
4a
Appendix A
to end industry turmoil. To facilitate the settlement, the
government moved to intervene in the remaining 24 qui tam
cases pursuant to 31 U.S.C. § 3730(c)(3), which permits the
government to intervene in a qui tam action at any time “upon
a showing of good cause.” The district court granted the motion,
over the relators’ objections, on the basis of the government’s
representations that it would litigate the qui tam actions, in
conjunction with the AMAA cases, if a settlement could not be
reached.
While the settlement negotiations were proceeding, the
district court ruled in April 1994 that the 1984 orange marketing
orders were unlawfully promulgated and that the prorate
provisions of the orange marketing orders were therefore
invalid. See United States v. Sunny Cove Citrus Ass’n, 854
F.Supp. 669, 697 (E.D.Cal.1994). The Sunny Cove case
involved the government prosecution of another citrus handler,
Sunny Cove, for violations of orange prorate regulations. Sunny
Cove successfully-defended the prosecution on the ground that
the Secretary’s reinstatement of prior marketing orders was
invalid. That decision made settlement less likely in these qui
tam cases because the overwhelming majority of qui tam and
AMAA actions were based on the invalidated prorate
regulations.
In May 1994, the Secretary announced his decision to
terminate the citrus marketing orders, dismiss all pending
AMAA actions, and withdraw from the FCA cases. The
Secretary justified this decision on the failure of the settlement
negotiations, the prospect of more litigation after the Sunny
Cove decision, and the desire to end the divisiveness in the
citrus industry caused by over ten years of litigation. The
Secretary concluded that the best way to advance the interests
of the industry was to “clean the slate.”
Sa
Appendix A
At the time of the Secretary’s announcement, the
government apparently did not believe it had the authority to
dismiss the qui tam actions over the relators’ objections. After
soliciting advice from all parties on the government’s authority
to dismiss under 31 U.S.C. § 3730(c)(2)(A), the government
moved for dismissal in August, 1994, citing six reasons: (1) to
end the divisiveness in the citrus industry; (2) to facilitate a
new marketing order; (3) to terminate protracted and
burdensome litigation; (4) to protect the United States’
taxpayers from continuing and escalating litigation expenses;
(5) to curtail the drain on private resources resulting from the
litigation; and (6) to allow the growers, agricultural
cooperatives, handlers and others to work together in shaping
new marketing tools.
After a four-day evidentiary hearing, the district court
granted the government’s motion to dismiss the qui tam actions,
ruling that the government sought dismissal for legitimate
government purposes; that the reasons offered by the
government were rationally related to these legitimate
government purposes; and that the dismissal was not arbitrary
or capricious. See 912 F.Supp. at 1353. The relators appeal,
contending that the district court could not dismiss on the
government’s motion unless the court found the cases lacked
merit.
DISCUSSION
The legal issues turn on the provisions of the False Claims
Act as it was amended in 1986. Under the qui tam provisions
of the FCA, a private individual, referred to as a relator, may
file an action on behalf of the federal government against any
individual or company who has knowingly presented a false
6a
Appendix A
claim to the government for payment. See 31 U.S.C. §§ 3729(a),
3730(b). A successful relator will generally receive a share of
the civil fines imposed and be eligible for attorneys’ fees and
costs. See 31 U.S.C. § 3730(d); United States ex rel. Hall v.
Teledyne Wah Chang Albany, 104 F.3d 230, 233 (9th Cir. 1997).
To proceed with a qui tam action, the relator must serve a
copy of the complaint on the government 60 days before it is
served on the defendant. See 31 U.S.C. § 3730(b)(2). During
the 60-day period, the government can investigate the
complaint’s allegations and elect to intervene in the action, in
which case the action is conducted by the government. 31 U.S.C.
§ 3730(b)(4)(A).
When the government chooses not to take over a qui tam
action, the relator has the right to conduct the action. 31 U.S.C.
§ 3730(c)(3). However, even in cases where the government
initially elects not to take over the action, the court “may
nevertheless permit the Government to intervene at a later date
upon a showing of good cause.” 31 U.S.C. § 3730(c)(3); United
States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 746 (9th
Cir.1993). The government may dismiss the action
“notwithstanding the objections of the person initiating the
action if the person has been notified by the Government of the
filing of the motion and the court has provided the person with
an opportunity for a hearing on the motion.” 31 U.S.C.
§ 3730(c)(2)(A); Kelly, 9 F.3d at 746.
I.
Dismissal of a Qui Tam Action
The relators’ primary contention is that the district court
erred by interpreting 31 U.S.C. § 3730(c)(2)(A) to allow the
7a
Appendix A
government to dismiss a meritorious qui tam action. The
government conceded, for purposes of its motion to dismiss,
that the FCA claims against the defendants were meritorious.
The issue is one of statutory interpretation which we review de
novo. See United States ex rel. Lujan v. Hughes Aircraft Co.,
67 F.3d 242, 245 (9th Cir.1995).
Although the statute is silent regarding the circumstances
under which the government may dismiss a qui tam action, the
decision to dismiss has been likened to a matter within the
government’s prosecutorial discretion in enforcing federal laws.
See Kelly, 9 F.3d at 756 (rejecting qui tam defendant’s
contention that 31 U.S.C. § 3730(c)(2)(A) impermissibly grants
the judiciary approval authority over government decisions to
dismiss qui tam suits in the exercise of its prosecutorial
authority); see also United States ex rel. Killingsworth v.
Northrop Corp., 25 F.3d 715, 724 (9th Cir.1994) (“The Court
will not assume that the qui tam provisions of the False Claims
Act were intended to curtail the prosecutorial discretion of the
Attorney General.”) (quoting Juliano v. Federal Asset
Disposition Ass'n, 736 F.Supp. 348, 351 (D.D.C.1990), aff'd,
959 F.2d 1101 (D.C.Cir.1992)).
The relators argue that interpreting 31 U.S.C.
§ 3730(c)(2)(A) to give the government authority to dismiss a
meritorious qui tam action is inconsistent with the general
framework of the False Claims Amendments Act of 1986,
Pub.L. No. 99-562, 100 Stat. 3154, which was intended to
provide relators with “increased involvement in suits brought
by the relator but litigated by the Government.” S.Rep. No.
99-345, at 13 (1986), reprinted in 1986 U.S.C.C.A.N. 5266,
5278; see also Kelly, 9 F.3d at 745 (“Congress amended the
FCA in 1986 to. . . enlist the aid of the citizenry in combatting
8a
Appendix A
the rising problem of ‘sophisticated and widespread fraud.’ ”)
(citation omitted).
Before the 1986 amendments, when the government elected
to intervene in a qui tam action, the suit was conducted solely
by the government. The 1986 amendments allow the relator to
continue as a party to the action after the government’s
intervention. See 31 U.S.C. § 3730(c)(1). Although the
amendments increased the relator’s role in such a case, the
government still has “primary responsibility” for the case and
now enjoys supervisory powers over the relator. /d. The
government can limit the relator’s participation by restricting
the number of the relator’s witnesses or the length of their
testimony. See 31 U.S.C. § 3730(c)(2)(C). The government may
also stay the relator’s discovery requests if they are likely to
interfere with the government’s criminal or civil investigation
of related matters. See 31 U.S.C. § 3730(c)(4). The amended
statute allows the government to settle an action,
notwithstanding the objections of the relator, as long as the
court determines that the proposed settlement is fair. See 31
U.S.C. § 3730(c)(2)(B). Most relevant to the present suit, the
government has the right to dismiss the action, notwithstanding
| the relator’s objection, if the relator is afforded notice and a
hearing. See 31 U.S.C. § 3730(c)(2)(A).
The 1986 amendments have also expanded the
government’s ability to intervene in a qui tam action. The
government may move for an extension of the original 60-day
period for deciding whether to intervene. See 31 U.S.C.
§ 3730(b)(3). Even after that period has expired, the government
now has the right to track the litigation and to intervene at a
later date upon a showing of good cause. See 31 U.S.C.
§ 3730(c)(3).
9a
Appendix A
Thus, while we have observed that the False Claims
Amendments Act of 1986 provided “increase[d] incentives,
financial and otherwise, for private individuals to bring suits
on behalf of the Government,” Killingsworth, 25 F.3d at 721,
the Act actually increased, rather than decreased, executive
control over qui tam lawsuits. This has been accomplished by
broadening the government’s powers of intervention, and by
giving the government the ability to supervise the relator’s
participation in a qui tam action when the government elects to
intervene. Certain of the government’s supervisory powers, such
as the power to stay the relator’s discovery, apply even if the
government decides not to intervene. As one court has
concluded, “[t]he 1986 version of the False Claims Act
continues the evolution of greater executive control over qui
tam lawsuits.” See United States ex rel. Stillwell v. Hughes
Helicopters, Inc., 714 F.Supp. 1084, 1090 (C.D.Cal.1989).
Although the amendments give the relator the right to
remain a party after government intervention, the government’s
power to dismiss or settle an action is broad. The amended
statute grants the relators an opportunity for a hearing on the
motion to dismiss, but does not specify any conditions under
which the relator may block the motion. This court has
previously noted that “[i]t is not clear whether in practice this
notice and hearing requirement has amounted to much of a
hurdle for the government.” Kelly, 9 F.3d at 753 n. 11.
The relators point to the statement in Kelly that 31 U.S.C.
§ 3730(c)(2)(A) allows the government to “move for dismissal
of a case which it believes has no merit.” See id. at 753. They
suggest that this statement means that lack of merit is the
exclusive ground upon which the government may seek
dismissal. Kelly does not so hold.
10a
Appendix A
The legislative history of the 1986 Amendments supports
the district court’s conclusion that a meritorious suit may be
dismissed upon a proper showing. The Senate Report states
that the False Claims Amendments Act of 1986 “provides qui
tam plaintiffs with a more direct role .. . in acting as a check
that the Government does not neglect evidence, cause undue
delay, or drop the false claims case without legitimate reason.”
S.Rep. No. 99-345, at 25-26 (1986), reprinted in 1986
U.S.C.C.A.N. 5266, 5291. This statement reflects congressional
intent that the qui tam statute create only a limited check on
prosecutorial discretion to ensure suits are not dropped without
legitimate governmental purpose.
The relators next contend that even if the government could
have dismissed the cases had it intervened initially, it could
not move for dismissal after it later intervened for good cause
pursuant to 31 U.S.C. § 3730(c)(3). We rejected a similar
contention in Kelly: “[W]hen the government intervenes late
in the action, a fair interpretation of the statute is that the
government has a similar degree of control over the litigation
as if it had intervened at the start.” Kelly, 9 F.3d at 752. Nothing
in § 3730(c)(2)(A) purports to limit the government’s dismissal
authority based upon the manner of intervention. This court
has noted that § 3730(c)(2)(A) may permit the government to
dismiss a qui tam action without actually intervening in the
case at all. See Kelly, 9 F.3d at 753 n. 10 (citing Juliano v.
Federal Asset Disposition Ass'n, 736 F.Supp. 348
(D.D.C.1990), aff'd, 959 F.2d 1101 (D.C.Cir.1992)).
lla
Appendix A
Il.
Standard Goverszing a Motion to Dismiss
Under 31 U.S.C. § 3730(c)(2)(A)
The relators next challenge the district court’s choice of
standard governing dismissal under 31 U.S.C. § 3730(c)(2)(A).
The relators contend that, if the government does have the
authority to dismiss a meritorious qui tam action under 31
U.S.C. § 3730(c)(2)(A), the applicable standard is Rule 41(a)(2)
of the Federal Rules of Civil Procedure. That rule allows the
court to grant a plaintiff's dismissal notion only with
appropriate terms and conditions to protect the defendant from
prejudice. In this case, because dismissal prejudiced the relators
by precluding a qui tam award, the relators claim that dismissal
should not have been permitted.
Rule 41 protects defendants from vexatious plaintiffs. See
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 397, 110 S.Ct.
2447, 110 L.Ed.2d 359 (1990). In this case, the plaintiffs, or
relators, seek protection from the dismissal decision of the real
party in interest, the government, under a specific statute
establishing unique relationships among the parties. The district
court correctly ruled that Rule 41 did not apply.
The qui tam statute itself does not create a particular
standard for dismissal. The district court acted reasonably in
adopting the following standard: “A two step analysis applies
here to test the justification for dismissal: (1) identification of
a valid government purpose; and (2) a rational relation between
dismissal and accomplishment of the purpose.” 912 F.Supp. at
1341. If the government satisfies the two-step test, the burden
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Appendix A
switches to the relator “to demonstrate that dismissal is
fraudulent, arbitrary and capricious, or illegal.” Jd. at 1347.
The same analysis is applied to determine whether executive
action violates substantive due process. See e.g., Lockary v.
Kayfetz, 917 F.2d 1150, 1155 (9th Cir. 1990).
This standard also draws significant support from the
Senate Report to the False Claims Amendments Act of 1986,
which explained that the relators may object if the government
moves to dismiss without reason. S.Rep. No. 99-345, at 26
(1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5291. A hearing
is appropriate “if the relator presents a colorable claim that the
settlement or dismissal is unreasonable in light of existing
evidence, that the Government has not fully investigated the
allegations, or that the Government’s decision was based on
arbitrary or improper considerations.” Jd.
Moreover, such a rational relation test avoids any
separation of powers concerns that this court addressed in Kelly.
There, we rejected a qui tam defendant’s contention that 31
U.S.C. § 3730(c)(2)(A) impermissibly grants the judiciary
approval authority over government decisions to dismiss qui
tam suits in the exercise of its prosecutorial authority. See
United States ex rel. Kelly, 9 F.3d at 756. We said:
We conclude that the judicial involvement which
the FCA authorizes does not contravene the
separation of powers principle. First, in the absence
of any meaningful indication that [the notice and
hearing] requirements pose significant barriers to
the Executive Branch’s exercise of its prosecutorial
authority, we see no reason to construe them as such
and thereby heighten constitutional concerns. See
Appendix A
note 8. Second, as we noted earlier, ample precedent
exists for judicial oversight of the government’s
decision to dismiss a qui tam action. See note 12.
Id.
Here, the district court has respected the Executive
Branch’s prosecutorial authority by requiring no greater
justification of the dismissal motion than is mandated by the
Constitution itself. See United States v. Redondo-Lemos, 955
F.2d 1296, 1298-99 (9th Cir.1992) (due process prohibits
arbitrary or irrational prosecutorial decisions).
Il.
Application of the Rational Relation Standard
The relators contend that the district court misapplied the
rational relation standard and that the reasons offered by the
government for dismissal were not rationally related to a
legitimate government interest. We conclude that the
government met its burden.
The relators first argue that elimination of legal battles in
the citrus industry is not a legitimate government interest under
the AMAA. The statute directs the Secretary to oversee orderly
marketing processes. See 7 U.S.C. § 602(1). Peace among
competitors and regulators facilitates orderly marketing. This
is especially true under a statute, which as the Supreme Court
has noted, “contemplates a cooperative venture among the
Secretary, handlers, and producers.” Block v. Community
Nutrition Inst., 467 U.S. 340, 346, 104 S.Ct. 2450, 81 L.Ed.2d
270 (1984) (emphasis added).
ek
l4a
Appendix A
The relators next assert that the government’s dismissal
motion was based on improper factors, such as political pressure
from the defendants and members of Congress. However, as
noted by the district court, citizens are entitled to advocate the
passage or enforcement of laws, see, e.g., Eastern R.R.
Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.
127, 139, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961) (“It is neither
unusual nor illegal for people to seek action on laws in the
hope that they may bring about an advantage to themselves
and a disadvantage to their competitors.”), and members of
Congress may seek to influence agency action, see, e.g., Radio
Ass'n on Defending Airwave Rights, Inc. v. United States Dep't
of Transp., 47 F.3d 794, 808 (6th Cir.1995) (“Americans rightly
expect their elected representatives to voice their grievances
and preferences concerning the administration of our laws.”).
There was no evidence that the defendants engaged in bribery,
fraud, or coercion, or otherwise conspired with the government
to dismiss the qui tam actions for improper reasons.
Third, the relators contend that the government sought
dismissal because Sequoia Orange Company itself was a prorate
cheater. The record shows, however, that the government
deemed further FCA litigation over prorate violations harmful
to the industry as a whole. Dismissal enabled the government
to treat all alleged prorate violators equally by dismissing all
enforcement actions, including the Secretary’s AMAA
enforcement action against Sequoia.
Next, the relators contend that the government’s concern
with litigation costs was irrelevant in light of the fact that the
FCA contemplates reliance on private financing for anti-fraud
enforcement. The district court, however, properly noted that
the government can legitimately consider the burden imposed
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Appendix A
on the taxpayers by its litigation, and that, even if the relators
were to litigate the FCA claims, the government would continue
to incur enormous internal staff costs. See 912 F.Supp. at 1346.
The relators finally contend that the district court erred by
granting the government’s motion to dismiss the qui tam actions
relating to lemon marketing because the lemon order, unlike
the orange order, had not been invalidated by the Sunny Cove
decision. The government presented evidence that (1) various
lemon handlers were under investigation for prorate violations
and (2) the lemon prorate violations were comparable to prorate
cheating in the orange industry and potentially as pervasive.
The dismissal of the lemon cases was therefore rationally related
to the legitimate government interest in preserving the financial
stability of the lemon industry.
IV.
Judicial Estoppel
The relators contend that the doctrine of judicial estoppel
bars the government from dismissing the qui tam actions in
light of the government’s earlier declarations, in support of its
motion to intervene in the orange qui tam actions, that it would
diligently prosecute the FCA claims. The doctrine of judicial
estoppel is an equitable doctrine invoked by the district court
at its discretion. See Morris v. California, 966 F.2d 448, 453
(9th Cir.1992). This court reviews for an abuse of discretion.
See United States v. Ruiz, 73 F.3d 949, 953 (9th Cir. 1996).
Judicial estoppel bars a party from taking inconsistent
positions in the same litigation. See Morris, 966 F.2d at 452.
In support of its motion to intervene in the qui tam actions, the
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Appendix A
government represented to the district court that it would litigate
the FCA claims if no settlement was reached. The relators
contend that this representation is inconsistent with the
government’s later decision to dismiss. In moving to dismiss,
however, the government was motivated by events that
transpired after its intervention, most notably the decision in
Sunny Cove, which declared the orange marketing orders
invalid. There is no indication that the government acted in
bad faith by representing that it would litigate the FCA claims
if settlement negotiations fell through. See Helfand v. Gerson,
105 F.3d 530, 534 (9th Cir.1997): Rather, the government
changed course when it determined that settlement was no
longer a reasonable possibility after Sunny Cove. This was a
rational policy decision that the government was entitled to
make under the qui tam provisions. Accordingly, the district
court did not abuse its discretion in concluding that there was
no equitable reason to apply judicial estoppel.
V.
Amendment of Qui Tam Complaints
This court reviews for an abuse of discretion the district
court’s denial of a motion for leave to amend a complaint. See
United States v. County of San Diego, 53 F.3d 965, 969 n. 6
(9th Cir.1995).
After the district court granted the government’s motion
to dismiss the qui tam actions, the relators informally requested
leave to file amended complaints alleging non-FCA claims. The
court denied the relators’ request on the ground that they had
failed to provide reasonable notice and an opportunity for
hearing on the request, in violation of Rule 15 of the Federal
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Appendix A
Rules of Civil Procedure and the Local Rules of the Eastern
District of California. Given the extremely late date at which
the relators first requested leave to amend, the district court
did not abuse its discretion in denying the request. See
Fed.R.Civ.P. 15(a); Moore v. Kayport Package Express, 885
F.2d 531, 538 (9th Cir.1989) (court may consider delay and
prejudice when ruling on motion for leave to amend).
CONCLUSION
We conclude that 31 U.S.C. § 3730(c)(2)(A) permits the
government to dismiss a meritorious qui tam action over a
relator’s objections. Where, as here, the government offers
reasons for dismissal that are rationally related to a legitimate
government interest, the qui tam action may be dismissed.
AFFIRMED.
18a
APPENDIX B — MEMORANDUM OPINION AND
ORDER OF THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF CALIFORNIA, RE:
UNITED STATES’ MOTION TO DISMISS
FILED SEPTEMBER 27, 1995
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
CV-F-88-566-OW W
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
Vv.
SUNLAND PACKING HOUSE COMPANY,
Defendants.
CV-F-89-002
Consolidated with
CV-F-89-004
CV-F-89-006
CV-F-89-007
CV-F-89-008
CV-F-89-012
CV-F-89-013
CV-F-89-014
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
Se ee ee al at
Pe ae ee ee ee a Te Se ee ne eee Ea ee pee cS ie =
itd
19a
Appendix B
SAN JOAQUIN CITRUS, and SUNKIST GROWERS, INC.,
Defendants.
CV-F-89-050
Consolidated with
CV-F-89-051
CV-F-89-052
CV-F-89-053
CV-F-89-054
CV-P-89-055
CV-F-89-056
CV-F-89-057
CV-F-89-058
CV-F-89-059
CV-F-89-060
CV-F-89-061
CV-F-89-062
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
BAIRD-NEECE PACKING CORP., and SUNKIST
GROWERS, INC.,
Defendants.
20a
Appendix B
CV-F-91-194-OWW
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
OXNARD LEMON COMPANY, et al.,
Defendants.
CV-F-91-195
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
MISSION CITRUS COMPANY, et al.,
Defendants.
CV-F-91-196
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
VENTURA PACIFIC COMPANY, et al.,
Defendants.
2la
Appendix B
CV-F-91-197
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY .,
Plaintiff,
v.
SATICOY LEMON ASSOCIATION, et al.,
Defendants.
CV-F-93-5016-OWW
UNITED STATES ex rel. LISLE BABCOCK,
Plaintiff,
v.
DOLE CITRUS, INC.,
Defendant.
MEMORANDUM OPINION & ORDER
RE: UNITED STATES’ MOTION TO DISMISS
I. BACKGROUND
These 27 partially consolidated False Claims Act (FCA)
cases are before the court on the United States’s motion to
22a
Appendix B
dismiss under 31 U.S.C. § 3730(a)(2)(A).' The motion presents
a question of first impression.
A. Statutory Background.
The claims arise from alleged violation of prorate
restrictions and reporting requirements in navel and valencia
orange marketing orders (7 C.F.R. §§ 907 and 908)? and the
lemon marketing order (7 C.F.R. § 910). The relators, Sequoia
Orange Company, a handler (processor) and, Lisle Babcock, a
grower of oranges, are competitors of defendants. Defendants
are Sunkist Growers, Inc., an agricultural cooperative
corporation and packinghouses, most of whom are Sunkist
affiliates. Relators contend that despite the defendants’ support
for marketing orders, defendants for some ten years have
consistently violated prorate and other regulations of the orders
by overshipping oranges and failing to accurately report,
account, and pay assessments for those overshipments which
give rise to the asserted false claims. A bitter ideologic dispute
over Citrus industry regulations between relators and defendants
has continued for more than ten years.
For the purposes of the motion, the parties assume the merit
of the FCA claims, subject to the United States’ objection to
subject matter jurisdiction that FCA claims based on alleged
1. The Government may dismiss the action notwithstanding the
objections of the person initiating the action if the person has been
notified by the Government of the filing of the motion and the Court has
provided the person with an opportunity for hearing on the motion.”
2. All citations to the Code of Federal Regulations refer to the 1994
edition. The regulations pertaining to the citrus marketing orders do not
appear in the 1995 edition because the orders were terminated in 1994.
23a
Appendix B
violations of the Agricultural Marketing Agreement Act
(AMAA) implicate a regulatory fine that cannot support a claim
as a matter of law.’ Relators have prosecuted these lawsuits
and relentlessly waged a campaign of public criticism against
Sunkist and its members, alleged economic domination of the
industry, claimed to have been effectuated primarily through
government regulation under the AMAA. To decide the
dismissal motion, the long and complex history of disputes over
Marketing Orders in the California-Arizona citrus industry must
be analyzed.
The parties disagree on whether the applicable standard
for decision is: (1) an unreviewable prosecutorial discretion
standard; (2) a rational relation standerd; or (3) a Federal Rule
of Civil Procedure Rule 41(a) non-prejudice standard.
1. The Agricultural Marketing Agreement Act of
1937.
The underlying law requires us to “delve into one of the
more byzantine, and all-encompassing, areas of federal
administrative regulation — that governing fruits and
vegetables.” Wileman Bros. Elliot, Inc. v. Espy, 58 F.3d 1367,
1372 (9th Cir. 1995). The Agricultural Marketing Agreement
Act of 1937 (AMAA) was enacted “to establish and maintain
... orderly marketing conditions for agricultural commodities
in interstate commerce.” 7 U.S.C. § 602(1). Congress believed
that improved marketing conditions for agricultural products
would benefit both producers and consumers by ensuring “an
3. This apparent inconsistency is explained by reference to the
history of the government’s initial declination to take over the cases
after denial of its motion to dismiss for failure to state a claim, and later
intervention to “settle the cases.” 31 U.S.C. §§ 3730(c)(2)(B) and
(c)(3).
}
|
24a
Appendix B
orderly flow of the supply [of fruits and vegetables] to market
throughout [their] normal marketing season to avoid
unreasonable fluctuations in supplies and prices.” 7 U.S.C.
§ 601(4). “The Act contemplates a cooperative venture among
the Secretary, handlers, and producers the principal purposes
of which are to raise the price of agricultural products and to
establish an orderly system for marketing them.” Block v.
Community Nutrition Inst., 467 U.S. 340, 346 (1984).
To achieve these goals the AMAA provides the Secretary
and the industry with a powerful tool, the marketing order.
Through marketing orders the Secretary and the industry may
regulate, inter alia, the quality, size, and quantity of a particular
commodity shipped to market. Marketing orders are essentially
self-help mechanisms to advance the economic interests of the
industry. The Secretary is not required to promulgate marketing
orders in each fruit or vegetable industry that is eligible under
the AMAA. Clayton 107:7-10.* The Secretary generally does
not advocate marketing orders in unregulated industries unless
industry participants request assistance in obtaining an order.*
Clayton, at 110.
Marketing orders become effective upon approval by the
Secretary and the industry. When the Secretary believes a
proposed order will tend to effectuate the declared policy of
the AMAA, the industry must be provided notice and an
opportunity for a hearing on the proposed order. 7 U.S.C.
§ 608c(3),(4). If after the hearing the Secretary issues an order
4. Testimony given during the evidentiary hearing is referenced
by the last name of the witness and the relevant transcript page.
5. Nonetheless, “a marketing order may be proposed by the
Secretary or by any other person.” 7 C.F.R. § 900.3 (emphasis added).
SS
25a
Appendix B
finding that the proposed order will effectuate AMAA policies
then an industry referendum is conducted. In the citrus industry
marketing orders must be approved by (1) handlers marketing
eighty percent of the volume of the commodity and (2) either
three-quarters of the affected growers or by growers who market
at least two-thirds of the volume of the particular commodity
(navels, valencias, or lemons). 7 U.S.C. § 608c(8). The
Secretary may waive the necessity for handier support by
finding that handler refusal to sign the agreement tends to
prevent the effectuation of the AMAA. 7 U.S.C. § 608c(9); see
also United States v. Sunny Cove Citrus Ass'n, 854 F. Supp.
669, 676 (E.D. Cal. 1994).
Once effective, marketing orders are implemented by
committees composed of industry members. 7 U.S.C. §§
608c(7)(C), 610. Committee members are nominated by
industry groups, appointed by the Secretary, and supervised by
the Agricultural Marketing Service (AMS), an agency within
the United States Department of Agriculture (USDA). See, e.g.,
7 C.F.R. §§ 907.22, 907.23. The committees recommend rules
and regulations to effectuate the marketing orders, to govern
matters such as fruit quality and flow to market restrictions,
which the Secretary may adopt through informal rulemaking.
7 C.F.R. § 907.52-52, 907.64.
The expenses to administer the marketing orders are funded
through assessments imposed upon fruit handlers based on the
volume of fruit they ship. 7 U.S. C. § 610 (b) (2) (ii) . The
committees annually submit budgets and a recommendation
for the rate of assessment to the Secretary. 7 C.F.R. § 907.41.
The Secretary approves the conmittees’ budgets and the
assessments to be imposed on handlers each year in the form
of a regulation.
26a
Appendix B
Marketing orders have regulated the California-Arizona
orange industry since 1954. Cecilia Packing, 10 F.3d 616, 618
(9th Cir. 1993). Each citrus order contained prorate provisions,
which limited the weekly volume of fruit shipped to market.
The efficacy of prorate has been bitterly disputed by industry
members, particularly Sequoia.
Defendant Sunkist is an agricultural cooperative
corporation, a protected form of entity under the AMAA. It
has affiliated packinghouses and member growers. Through
bloc-voting,® Sunkist allegedly perpetuated prorate, while many
independent growers and packinghouses, as well as some
Sunkist members, opposed prorate and other forms of federal
regulation of the industry. Relators have for over ten years
claimed that defendants, particularly Sunkist, exercise enhanced
access to and influence over the USDA and members of
Congress, by virtue of defendants’ political influence, lobbying
efforts, and campaign contributions to elected officials. These
efforts allegedly resulted in the adoption of marketing orders
with prorate and appointment of defendants and their supporters
to industry AMAA commodity (navel and valencia orange)
committees (NOAC and VOAC).
Under prorate, the commodity committees meet each week
during the harvest season to recommend a total quantity of
6. The AMAA provides that whenever the Secretary conducts a
referendum on grower support for a marketing order “the Secretary shall
consider the approval or disapproval by any cooperative association of
producers ... as the approval or disapproval of the producers who are
members of, stockholders in, or under contract with, such cooperative
association.” 7 C.F.R. 608c(12); see also Cecilia Packing, 10 F.3d 616,
621-25 (9th Cir. 1993) (the bloc-voting provision does not infringe
First-Amendment freedoms or violate equal protection).
——————E—EEE
27a
Appendix B
oranges and lemons for shipment to market the following week.
7 C.F.R. §§ 907.51, 908.51, 910.51. Producers pay assessments
to the committees based on the volume of fruit shipped to
market. 7 C.F.R. §§ 907.41, 908.41, 910.41. Handlers who ship
quantities of citrus in excess of their allocated prorate are
subject to criminal fines of up to $5,000 per violation and civil
penalties of $1,000 per violation. 7 U.S.C. § 608c(14). They
are also subject to civil forfeitures for quantities of fruit shipped
in excess of prorate. The amount of the forfeiture is “a sum
equal to the value of such excess at the current market price for
such commodity at the time of violation.” 7 U.S.C. § 608a(7).
The United States is authorized to initiate criminal prosecutions
and forfeiture suits against handlers who violate prorate. 7
U.S.C. § 608a(7). The most onerous result of prorate is the
dumping of fruit required when supply exceeds available prorate
quotas.
2. The False Claims Act. Bi
The FCA creates liability for those who defraud the
government. One species of fraud claim under the FCA, the
so-called “reverse false claim,” makes liable any person who
“knowingly makes, uses, or causes to be made or used, a false
record or statement to conceal, avoid, or decrease an obligation
to pay or transmit money or property to the Government.” 31
U.S.C. § 3729(a)(7). The penalty for violation of the FCA is a
fine of not less than $5,000 and not more than $10,000 per
false report plus three times the amount of damages the
government sustains as a result of the fraud. 31 U.S.C.
§ 3729(a).
The FCA includes provisions to encourage
“whistleblowing” by private individuals with knowledge of
28a
Appendix B
fraud on the government. Under these qui tam provisions, a
private party, called a relator, may initiate a suit under the FCA
in the name of the federal government. 31 U.S.C. § 3730(b).
However, the complaint must be filed under seal for 60 days
before it is served on the defendant. During this time the
government can elect to intervene in the action or decline to
take over the action. Id. In the latter case, the relator may
proceed with the case. 31 U.S.C. § 3730(c)(1). if the government
ultimately obtains a recovery the relator is entitled to a
percentage of the proceeds, which depends upon the relator’s
involvement in the case, as well as reasonable costs and
attorneys’ fees. 31 U.S.C. § 3730(d).
In these FCA cases, relators allege the defendants created
false reports and documents to conceal fruit shipments in excess
of their prorate allotment and intentionally avoided payment
of assessments for unreported overshipments and forfeitures
payable for undocumented shipments.’ The government has
steadfastly maintained no claim can be stated under the FCA
for violation of AMAA prorate regulations.’ Originally the
government prosecuted Sequoia and other orange growers and
handlers for alleged AMAA violations and sought to deny
Sequoia’s participation as relator in these cases.
7. The relators contend the defendants concealed excess shipments
by two methods. The first method was to not record shipments in excess
of the prorate allotment for a particular week. The second method,
sometimes called “mismanifesting”, was to falsely record the date of a
shipment. Fruit shipped during weeks in which the packinghouse did
not have sufficient prorate was mismanifested to appear that it was
shipped during a different week. e
8. Statements by the government’s trial counsel concerning the
intention of the United States as plaintiff to prosecute these FCA cases
are the subject of dispute.
sceemrermnerernremeesiainsilialiiaineiaaas
29a
Appendix B
Under the citrus marketing orders, handlers are required
to complete and submit reporting documents to the commodity
committee when shipping fruit. They must provide daily (form
3) and weekly (form 4) reports of fruit shipped. See, e.g., 7
C.F.R. §§ 908.140 and 908.141. They must also complete an
assignment of allotment certificate (form 8). E.g. 7 C.F.R.
§ 908.58. Finally, the marketing orders require handlers to keep
other records such as truck manifests and customer invoices.
E.g. 7 C.F.R. § 908.173. Relators allege that a mismanifested
shipment of fruit could result in as many as five false records,
forms 3, 4, and 8, plus a shipping manifest and a customer
invoice. At a minimum, an unrecorded shipment results in two
false records, forms 3 and 4. The loss to the government is
claimed to be unpaid assessments calculated on unreported
volume of overshipped fruit, 7 U.S.C. § 610(b)(2)(ii), and the
AMAA forfeiture (market value of the excess fruit). Relators
also seek penalties of up to $10,000 for each false record made
in connection with a prorate violation and three times the market
value of the fruit shipped in excess of prorate. Total claims are
estimated to approach four hundred million dollars.
B. History of the Litigation. —
Sequoia, an independent packinghouse that competes with
defendants in the citrus industry, has been accused of shipping
oranges in excess of its prorate allotment in a 1993 AMAA
forfeiture action brought by the government. Sequoia was
sanctioned in that litigation for intentional document destruction
in violation of court order. Although Sequoia is a vehement
critic and opponent of the California-Arizona citrus marketing
orders, particularly the prorate feature, Sequoia denies it cheated
on prorate. It complains that the USDA ignored widespread
cheating by other members of the industry, particularly Sunkist,
30a -
Appendix B
the dominant co-op in the California-Arizona citrus industry,
and its associated packinghouses and members, Sequoia
counterclaimed against the USDA charging it was being
selectively prosecuted for its opposition to the marketing orders.
The counterclaim was dismissed on the ground that the
government is not barred from selectively prosecuting prorate
cheaters in its exercise of prosecutorial discretion. See United
States v. Sequoia, CV-F-83-510, order filed March 14, 1994.
In December of 1988 Sequoia filed the first of these FCA
cases alleging violation of the navel and valencia orange
marketing orders. In 1989 it filed 22 more orange cases naming
Sunkist and Sunkist-affiliated packinghouses. The government
moved to dismiss those cases, arguing no FCA claim could be
stated for false statements made in connection with AMAA
prorate regulations. The government’s motion was denied on
July 5, 1989. The government elected not to intervene in the
cases.
In 1991, Sequoia filed four additional FCA cases alleging
violations of the lemon marketing order. The government again
moved to dismiss the cases for failure to state a claim. The
motion was denied by a different judge. Unlike the orange cases,
the government elected to intervene in the lemon cases. The
last FCA case was filed in 1993 by Lisle Babcock, an orange
grower, against Dole Citrus, although Sequoia has nine
additional cases.
The government conducted its own investigations into
alleged prorate violations between 1989 and 1991. It began
filing AMAA cases based upon the evidence it uncovered. In
June of 1993 the government decided to seek a “global”
settlement of all AMAA and FCA cases alleging prorate
3la
Appendix B
violations too end industry turmoil. To facilitate FCA
settlements the government moved to intervene in the orange
cases. The relators opposed the government’s motion to
intervene, claiming intervention would lead to a “sweetheart”
settlement, that the government would not vigorously pursue
the cases by reason of its opposition to use the FCA for AMAA
enforcement, and because the USDA was under the alleged
political influence of Sunkist and other of the packinghouse
defendants. At an August 9, 1993, hearing on the government’s
intervention motion, the government’s trial counsel, in response
to specific inquiry from the court whether it would prosecute
the FCA claims if the cases were not settled, stated that the
government intended to litigate the FCA claims if necessary.
(Trans. pp. at 22-24). A high level of mistrust and hostility,
actual and legal, has existed between relators and the
government from the inception of these cases.
The government’s motion to intervene was granted based
upon its trial counsel’s representation that it would pursue the
FCA claims if no settlement was reached.’ Settlement
procedures were then established which required that relators
be allowed to object to any settlement of the FCA cases.
However, based upon allegations that relators were using the
cases to destroy the businesses of the defendants and to create
sufficient disruption in the industry to facilitate the demise of
9. In the evidentiary hearing on these motions testimony revealed
for the first time, that the USDA never intended to litigate the FCA
cases; its only purpose for intervention in the cases was to settle them.
Rominger, at 214, 261; Golden, at 634. Intervention was ordered over
relators, objection that they had a nondefeasible vested interest in these
qui tam cases. See Mem. Op. & Order re U.S. Mot. to Dismiss, at 14-15.
Relators’ right to share in the FCA bounty is subject to defeasance if the
government moves to dismiss or settle the case over the relators,
objection. 31 U.S C.§ 3 730 (c)(2)(A), (2)(B).
32a
Appendix B
prorate and marketing orders, relators were not allowed to
participate directly in settlement negotiations. 31 U.S.C.
§ 3730(c)(2)(C) and (D). The defendants and the government
believed that confidential financial and transactional
information about the defendants, to be provided during the
settlement process, could be used by the relators to the detriment
of-the defendants, to harass them in existing FCA cases and to
obtain facts to support new FCA cases. The defendants opposed
disclosing confidential operating data and evidence of their
financial condition. See 7 U.S.C. § 608d. However,
court-ordered settlement procedures required that the
government disclose terms of any settlement reached by it with
the defendants to allow the relators the opportunity to exercise
their right to object to any settlement under 31 U.S.C.
3730(c)(2)(B).
In June of 1993 the USDA suspended the prorate feature
of the citrus marketing orders. It requested that members of
the industry propose amendments to the current marketing
orders. Although some proposals were submitted to the
Secretary, he concluded that none of them had sufficient support
within the industry to justify a hearing.
On April 18, 1994, this court issued a ruling a summary
judgment motions in United States v. Sunny Cove Citrus Ass'n,
854 F. Supp. 69 (E.D. Cal. 1994), which held the 1984 navel
and valencia orange marketing orders, Nos. 907 and 908, were
unlawfully promulgated. The Sunny Cove decision was the final
chapter of a controversy that began in July of 1984 when the
Secretary of Agriculture proposed 21 amendments to the orange
marketing orders. 49 Fed. Reg. 19,071 (1984). The Secretary
issued a finding that all 21 amendments tended to effectuate
the policies of the AMAA and that the existing orders did not.
33a
Appendix B
Sunny Cove, 854 F. Supp. at 681. Initially, the Secretary
required that the industry vote on the amendments as a package.
If the package was defeated in the referendum then the existing
orange marketing orders would be terminated and the industry
would go unregulated. Jd. After intense lobbying by Sunkist in
Congress" and of the USDA, the Secretary reversed his decision
and allowed growers to vote on each amendment separately.
49 Fed. Reg. 32,080 (1984); see also Sequoia Orange Co. v.
Yeutter, 973 F.2d 752, 754, 757-58 & n.5 (9th Cir. 1992)."'
Only 13 of the amendments were ratified in the referendum.
The Secretary issued a new finding, made without notice or
opportunity for comment, that the newly amended orange
marketing orders tended to effectuate the policy of the AMAA.
Sunny Cove, 854 F. Supp. at 681.
Sequoia filed a petition challenging the validity of the
valencia orange order. Judge Price invalidated the valencia
order, because the Secretary did not follow the requirements
of the Administrative Procedure Act (APA) when he reversed
the finding that the orders did not tend to effectuate AMAA
policy absent all 21 amendments without notice or comment.
10. In response to pressure from those opposing the all or nothing
approach to the amendments, Congress attached riders to two agricultural
appropriation bills, making the funds contingent upon the Secretary
allowing growers to vote on each amendment separately. See Act of
August 22, 1984, Pub.L. No. 98-396, 1984 U.S.C.C.A.N. (98 Stat.) 1369;
Act of October 12, 1584, Pub.L. No. 98-473, 1984 U.S.C.C.A.N. (98
Stat.) 1837.
11. The Ninth Circuit noted that the declaration of then Deputy
Secretary of Agriculture John Ford stated, “the Secretary was in effect
politically blackmailed into abruptly and without rational reason or legal
justification changing the Final Decision.” Sequoia-Orange Co. v.
Yeutter, 973 F.2d at 758 n.5.
34a
Appendix B
The Ninth Circuit affirmed in Sequoia Orange Co. v. Yeutter,
973 F.2d at 759. Both the Appeals and trial courts afforded the
Secretary opportunity to cure any deficiencies in the orders.
After the Ninth Circuit decision, the Secretary announced, again
without notice or opportunity for comment, that the
pre-amendment orders promoted AMAA policy and would
remain in effect. Sunny Cove Citrus Association sued, in 1991,
challenging the validity of the pre-amendment orders.
The Sunny Cove decision held that the Secretary was bound
by the implicit tendency finding that the unamended orders did
not effectuate the AMAA without adoption of all 21 proposed
amendments. The Secretary was ordered to comply with the
APA’s notice and comment requirements before changing this
negative tendency finding. Sunny Cove found that the
pre-amendment orders were not terminated and gave the
Secretary a third opportunity to address defects in the orders
that resulted from the Secretary’s 1984 tendency finding.
On May 16, 1994, the USDA announced its decision to
terminate all three California-Arizona citrus marketing orders,
59 Fed. Reg. 44020 (Aug. 26, 1994), dismiss all pending AMAA
enforcement actions, and withdraw from the FCA cases. The
USDA’ justification was to end the divisiveness in the citrus
industry caused by over ten years of acrimonious litigation.
See Ex. G-15 (USDA press release, May 16, 1994). No one
disputes that the citrus industry was rife with strident disputes
among independents, led by relators on one side, and Sunkist
and its members, over continuance of prorate and the disputed
marketing orders.
After the May 16, 1994, decision, defendants intensely
. lobbied Congressional representatives and USDA officials to
35a
Appendix B
dismiss the FCA cases. The USDA requested that the U.S.
Department of Justice (DOJ) move to dismiss the FCA cases.
The DOJ studied the request and then invited all of the parties
to present their views. After reviewing legal briefs and written
arguments from the relators’? and the defendants, Exs. G-30 to
G-32, the government moved for dismissal of the FCA cases in
August of 1994. Following briefing, and oral argument on the
motion to dismiss on October 24, 1994, an evidentiary hearing
was ordered.
C. The Evidentiary Hearing.
A four-day evidentiary hearing was conducted in June of
1995. All of the parties were afforded the opportunity to present
evidence and cross-examine witnesses. The parties also
submitted deposition testimony, documentary evidence, and
posthearing legal memoranda. The following additional facts
were adduced.
In 1988 the USDA received complaints from Sequoia and
Jack Stetson, a former NOAC and VOAC auditor of citrus
marketing order compliance, of widespread prorate violations."”
Mr. Stetson charged that prorate violations by Sunkist
packinghouses were swept under the rug by corrupt committee
members who represented Sunkist and committee auditors.
Dave Lewis, the Director of the Office of Compliance for the
12. The realtors also met with Charles J. Stevens, the United States
Attorney for the Eastern District of California, on June 14, 1984, to
express their view that the government should prosecute the FCA cases
rather than dismiss then Ex. G-33.
13. The evidence established that Sequoia, through counsel, has
over ten years been waging political, public relations, and litigation
campaigns seeking to overturn the orange marketing orders and prorate.
36a
Appendix B
AMS testified that Stetson’s claims were carefully investigated.
Lewis, at 291-93. The AMS found no evidence of discriminatory
enforcement or corruption in the commodity committees. /d.
at 293-94.
During its investigation of Mr. Stetson’s claims the AMS
discovered that the citrus committees were not adequately
enforcing compliance with prorate: their auditors lacked
expertise; audit coverage was spotty and shallow; and audit
documentation insufficient. The AMS urged the committees to
improve their investigative capabilities, increased its oversight
of the committees’ enforcement efforts, and became directly
involved in investigations of possible prorate violations. Lewis,
at 295-304. Subsequent roadside inspections of shipping
manifests and examination of third party records uncovered
evidence of systematic prorate cheating by Sunkist
packinghouses and independent packinghouses. Lewis, at
306-13; Exs. G-58, G59, G-60.
Based upon the growing evidence of widespread prorate
cheating throughout the industry, in 1992 the USDA initiated
“Operation Fair Enforcement,” in conjunction with the U.S.
Attorney’s Office and the Office of the Inspector General.
Clayton, at 52. The AMS paid the salary of a Special Assistant
United States Attorney who instituted numerous AMAA
forfeiture actions against defendant packinghouses and others
for alleged prorate violations.
The USDA concluded during 1992 and 1993, that the
industry-wide cheating was indicative of dissatisfaction with
and divisiveness over the marketing orders. There was a
particularly strong difference of opinion over the need for
prorate restrictions. Clayton, at 58. In December of 1992
37a
Appendix B
Secretary Madigan informed the citrus industry that he would
not entertain prorate recommendations from the commodity
committees for the remainder of the season. Clayton, at 56.
Sunkist, the strongest proponent of prorate, filed suit in U.S.
District Court in Washington D.C. challenging the Secretary’s
decision. The Secretary’s decision was judicially affirmed.
In June of 1993 the USDA announced suspension of prorate
and invited the industry to propose amendments to the
California Arizona citrus marketing orders. In response to the
USDA’s call for amendments the commodity committees held
industry meetings to determine whether there was consensus
for an amended order. Several proposed amendments were
submitted, but considerable division in the industry existed over
whether prorate should be retained and whether a generic
advertising program should be implemented. Clayton, at 61.
A significant segment of the industry expressed an interest
in amending the orders. Notes of NOAC and VOAC meetings
show navel and valencia advisory committees made substantial
efforts to build consensus around amendments to the citrus
marketing orders. Exs. G-49 to G-55. In December of 1993,
the NOAC and VOAC sent a joint letter to the USDA requesting
assistance with the amendatory process: Ex. G-69. USDA policy
makers were informed by staff who attended the industry
committee meetings that the litigation pending in the industry
was impeding the amendatory process. Clayton, at 135."
14. Dr. Clayton could not recall specifically when or by whom he
was informed that pending litigation was inhibiting the amendment
process. Clayton, at 135-36. Nor could he recall any particular industry
participant stating that it would not agree to a new marketing order unless
the enforcement litigation was terminated. /d. at 134:18-25. Deputy
(Cont'd)
38a
Appendix B
The government in June 1993 proposed a global settlement
package to all industry members sued for or suspected of prorate
violations, whether under the AKAA or the FCA. The DOJIs
trial counsel atfempted to negotiate settlements in all pending
AMAA and FCA cases. USDA officials concluded that
counteroffers proposed by some defendants were too low.
Clayton, at 156, By February of 1994, USDA officials believed
the settlement process was moving very slowly and that the
likelihood of settlement was remote. The USDA viewed Sunkist
as culpable and that it should participate in any settlement.
Rominger, at 196-97. However, Sunkist denied liability and
adopted a stonewall position refusing to consider settlement.
After the April 1994 Sunny Cove decision invalidating
orders 907 and 908, USDA officia!s doubted they could address
the 1984 tendency finding without speculating as to the reasons
for Secretary Block’s decision or without considering the
subsequent industry division and turmoil over the orders.
Clayton, at 77-78; Rominger, at 199-200. They worried any
attempt to reestablish the 1984 tendency finding would only
spawn more litigation. Rominger, at 200.
The USDA concluded it could not continue to prosecute
the AMAA orange forfeiture cases without curative rulemaking.
(Cont'd)
Secretary Rominger recalled three specific occasions on which he was
informed that pending litigation was hindering consensus for new
amendments. He was told this by Sunkist representatives, representatives
of defendant packinghouses, and Joel Nelson, president of Californta
Citrus Mutual. Rominger, at 223:17-25; 225:17:23; 226:14-17. Robert
Keeney testified that during discussions with staff and industry members
he learned that the pending litigation was “weighing very heavily on the
minds of the handlers and ... the minds of the farmers.” Keeney, at
367.
ee a ee i Seen a —
39a
Appendix B
USDA rejected amending the AMAA cases to state FCA cl. «ms
in deference to the DOJI s belief FCA claims could not be stated
as a matter of law. After the Sunny Cove decision, defendants
were unwilling to offer settlements.
USDA officials’ reevaluated their citrus industry policies
after Sunny Cove. Based upon failure to settle the AMAA
enforcement and FCA litigation, futile attempts to achieve
consensus for an amended order, and the prospect of either
dismissing the AMAA cases or facing more litigation after S
Cove, USDA decided it was no longer in the interest of the
citrus industry to pursue AMAA enforcement actions. The
Secretary concluded that the best way to advance the interests
of the industry was to “clean the slate.” This meant terminating
the citrus marketing orders, dismissing the pending AMAA
cases, and withdrawing from the FCA cases. USDA officials
wanted to “wipe the slate clean” to the maximum extent
possible. Clayton, at 82. However, USDA believed it lacked
authority to dismiss the FCA cases and only sought to withdraw
from the FCA cases. Clayton, at 82; Rominger, at 238; Golden,
at 644-45.
The USDA’s primary motivation was to end the
divisiveness and lawlessness it perceived within the industry
and to foster the development of new marketing orders.
However, USDA officials considered several other factors,
including the detrimental economic impact on the industry of
the cost of defending against enforcement litigation and the
potentially destructive effect of liability faced by defendants
15. The principal officials involved in the decision were Deputy
Secretary Richard Rominger, Acting Deputy Assistant Secretary Dr. Ken
Clayton, Counsel to the Secretary Kim Schnoor, and Associate General
Counsel John Golden. Clayton, at 80.
40a
Appendix B
in the FCA litigation. Deputy Secretary Rominger was informed
by staff that potential FCA liability could bankrupt some
packinghouses. Rominger, at 203. No analysis of the
packinghouses’ litigation expenses and financial exposure based
on defendants’ financial capacity was performed. /d.; Clayton,
at 170-71. The harmful financial impact of the litigation on the
industry, though not a “determining factor,” was a concern.
Rominger, at 265.
Several other reasons were considered: “the message that
would be sent to other industries with marketing orders;”
Clayton, at 86; Rominger, at 202; the negative reaction of
innocent handlers, who were harmed by prorate cheating, and
of those handlers who cheated but previously settled with the
USDA; Schnoor, at 104; Cl2yten, at 88; the USDA’s investment
in the cases; Clayton, at 85, Rominger, at 203; and the
importance of enforcement ta. the success of marketing orders.
Clayton, at 92. These factors were of lesser importance
compared to the goal of achieving industry cooperation.
Clayton, at 92.
Termination of the 1984 marketing orders did not affect
the USDA’s pending AMAA case against Sequoia, because
those claims arose out of violations of orders in effect prior to
1984. However, consistent with global amnesty, USDA
dismissed the case against Sequoia, although the government
viewed Sequoia as the most culpable prorate cheater. '®
Sunkist representatives met with Deputy Secretary
Rominger the morning the USDA announced termination of
16. The government excluded Sequoia from the global settlement
offer because it believed that Sequoia’s conduct was more “egregious”
than that of other prorate cheaters. Clayton at 185-86.
oo”
4la
Appendix B
the marketing orders and the AMAA cases. When told the
government would not dismiss the FCA cases, Sunkist requested
a second meeting with Deputy Secretary Rominger. At that
meeting they told him they believed the USDA’s decision “was
creating a gross injustice, unfairness in the extreme.” Hanlin,
at 605:6-7. Mr. Rominger responded the USDA believed it did
not have authority to dismiss the FCA cases. Hanlin, at 605.
The Sunkist Board of Directors in correspondence to the
USDA expressed their “outrage []” over the government’s
failure to dismiss the FCA cases. On May 20, 1994, Sunkist
requested that its growers, packinghouses, and district
exchanges call the USDA and their representatives in Congress
to tell them of the unfairness of not dismissing the FCA cases.
Quarles, at 682; Ex. R-110. So many phone calls were placed
to the USDA that shortly after making the request Sunkist sent
a second letter asking its members to stop calling the USDA
because “they got the message.” See id. Numerous letters were
also sent to the members of Congress by Sunkist growers and
packinghouses. Ex. R-111.
Sunkist’s counsel in Washington D.C. wrote to the USDA
to inform it of 31 U.S.C. § 3730(c)(2)(A), which Sunkist
believed gave the government statutory authority to dismiss
the FCA cases. Ex. R-95. Counsel for the packinghouse
defendants wrote letters to members of Congress stating that
the failure to dismiss the FCA cases created unfairness and
threatened to destroy Sunkist and other defendants. These letters
requested assistance in obtaining dismissal of the FCA cases
pursuant to § 3730(c)(2)(A). See Exs. R-91, R-96, R-101. The
extent of defendants’ access to members of Congress is in part
reflected by the adoption by members of Congress of a letter to
the USDA, the substance of which was drafted by attorneys for
the defendants. Ex. R-158.
42a
Appendix B
In late May and early June, Mr. Quarles, Sunkist vice
president for corporate relations, met with members of Congress
and their staff to express his views on the USDA’s decision to
allow the FCA cases to go forward. Quarles, at 680-82. He
also informed them of defendants’ view that statutory authority
permitted government dismissal of FCA-claims. Several
members of Congress contacted the USDA to inquire about the
status of the FCA cases and to recommend that the USDA
request the DO! to dismiss the FCA cases. Rominger, at 208-09.
On May 20, 1994, the USDA requested that the DOJ consider
dismissing the FCA cases. Rominger, at 210-11; Ex. G-24.
The DOJ took the USDA’s request under advisement and
asked the parties to the FCA cases for their views on dismissal.
All parties, including the relators, who personally met with the
DOLT, submitted legal briefs and argument. Sunkist and the
packinghouse defendants continued to contact members of
Congress, the USDA and the DOJ to gain support for
dismissal.'’? Several members of Congress contacted the
Department of Justice to state their support for dismissal. Exs.
G-26 (Senator DeConcini); G-27 (Representative Gallegly);
G-28 (Senator Feinstein). On June 22, 1994, Assistant Attorney
General Frank W. Hunger responded to each of these
communications with a letter stating that the DOJ was “not in
a position to respond at this time because this is a pending matter
and no final decision has been reached.” Exs. G34 to G-36. In
August of 1994 the DOLT, as lawyer for the United States, 28
U.S.C. §§ 516 et seq., following its independent analysis, moved
to dismiss all pending FCA cases.
At the hearing, the packinghouse defendants presented
expert testimony concerning the financial impact of potential
17. See, e.g., Exs. R-113, 115, 122, 124-26, 129, 132, 135, 138,
139, 150, 152, 154-57, 160, 162-64.
43a
Appendix B
FCA damage awards on twelve packinghouses. Their first
expert, Dr. Sexton, testified that the average FCA penalty in
these cases could be as high as $14,157,000, excluding
attorneys’ fees."* Dr. Sexton was provided with anonymous
summary financial information for 12 defendant packinghouses.
in his opinion, none of these packinghouses had sufficient liquid
assets and net equity to withstand a judgment of the magnitude
sought by relators. Sexton, at 434:9-14. Only three of the twelve
packinghouses could afford a $3 million judgment. Sexton, at
433. Dr. Sexton opined that any judgment that significantly
exceeded the liquid assets of a packinghouse, requiring it to
increase its long term debt, would force the packinghouse to
increase the fees charged its growers. Consequently, such
growers would switch to other packinghouses with less debt to
avoid increased costs, putting the penalized packinghouses out
of business. Sexton, at 436-38. Cooperative packinghouses are
particularly susceptible to this cycle of disintegration. Sexton,
at 439.
18. In reaching this figure Dr. Sexton assumed that each shipment
in excess of prorate involved five false forms or statements and that
each false form would result in the maximum penalty of $10,000. He
also assumed that the average market price per carton of oranges is $7
and that a shipment contains 500 cartons. Thus, the total penalty for a
hypothetical shipment in violation Of prorate would be a $59,000 fine
for the five false statements plus three times the market value of a 500
carton shipment ($3,500) for a total of $60,500. Sexton, at 43234. The
average number of mismanifested shipments alleged against the
packinghouse defendants in these cases is 234. Sexton, at 434: 3-4. These
assumptions overestimate potential FCA liability to the extent that five
false forms are not filed for each shipment in violation of prorate. Sexton,
at 473-74.
44a
Appendix B
The packinghouse defendants’ second expert, Dr. Carman,
described the indirect economic effects a large penalty would
have on the counties in which packinghouses operate. Dr.
Carman based his analysis on “multipliers” that estimate the
effect of increasing or decreasing spending in a particular
county on employment, value added, and personal income. This
“inputoutput” model estimates the effects of diffuse economic
activity, such as the imposition of a new tax on a community.
Carman, at 96-97. Dr. Carman offered his opinion that a one
million dollar judgment would cause the loss of 14-17 jobs in
the county of the articular packinghouse. He also estimated
that such a judgment would reduce personal income in the
community by $428,000 to $606,800. Carman, at 489-90.
However, Dr. Carman testified he s unaware of any published
or reported instance in which this economic model has been
used to estimate the secondary effects on an entire community
from a judgment against a particular business. Carman, at 497.
Relators’ evidence established that fractious views are held
by independent growers and packinghouses on the subjects of
marketing orders and prorate. Relators and independent
handlers and growers who support them are estimated to
represent fifteen percent (15%) of the industry. They continue
to hold contentious and hostile views toward Sunkist and its
members. Roth, at 52:11-13; Elliott, at 401-02; see a/so Hanlin,
at 629:14-21. relators’ proof raises serious doubt about the
premise that dismissal of the FCA cases will bring “peace” to
the citrus industry. Several of relators’ witnesses stated
dismissal of the CA cases would inhibit the industry from
reaching consensus for new marketing order and will only
exacerbate divisiveness in he industry.
45a
Appendix B
Il, THE MERITS
A. Standard of Review
The government initially maintained its decision to dismiss
FCA cases is unreviewable, as an exercise of its prosecutorial
discretion. The court rejected this argument and required proof
to show dismissal is rationally related to a legitimate
government interest and not arbitrary and capricious, fraudulent,
or illegal. All parties have submitted authority on alternative
stanaards of review of dismissal: absolute prosecutorial
discretion, rational relation, and Rule 41(a) prejudice.
A two part analysis applies to identify the standard of
review: (1) What did Congress intend to be the standard of
review for dismissals under § 3730(c)(2)(A)?; (2) Does that
standard violate separation of powers by improper vesting of
executive authority in the judiciary or the relator?
1. Unreviewable Prosecutorial Discretion
The government exercise of prosecutorial discretion to
dismiss in criminal cases is governed by Fed. R. Crim. P. 48,
and in civil cases by Fed. R. Civ. P. 41. The criminal rule
contains no express standard for judicial review.’ The civil
rule vests the court with discretion to determine proper terms
and conditions if the government seeks to dismiss a case after
the defendant has answered or filed a motion to dismiss. Fed.
R. Civ. P. 41(a). Voluntary dismissal of a FCA case is
19. Rule 48 states that the government may dismiss a’ indictment,
information, or complaint “by leave of the court.” Fed. R. Crim. P. 48(a).
Consent of the defendant is required if dismissal is sought during trial.
Id.
46a
Appendix B
authorized by the express provision of § 3730(a)(2)(A) under a
unique statutory scheme, which does not refer to the Federal
Rules of Civil Procedure. Where two statutes are inconsistent,
generally, the more specific statute prevails. Hellon & Assocs.,
Inc. v. Phoenix Resort Corp., 958 F.2d 295, 297 (9th Cir. 1992).
This case is governed by the specific FCA dismissal authority,
§ 3730(c)(2)(A). Congress is presumed to be knowledgeable
of existing law pertinent to legislation it enacts. Goodyear
Atomic Corp. v. Miller, 486 U.S. 174, 184-85 (1988). It could
have incorporated by reference the standards of Fed. R. Civ. P.
41(a) if it so intended, but did not. See Hellon & Assocs., 958
F.2d at 298.
In their post-hearing brief the packinghouse defendants
argue that on its face § 3730(c)(2)(A) gives the executive the
discretion to dismiss FCA cases for any reason (or no reason at
all) so long as dismissal is not based upon constitutionally
impermissible considerations such as race, religion, or exercise
of First-Amendment rights. The statute provides no express
standard of review for dismissal. The most that can be
determined from the face of the statute is that Congress intended
to provide the relator an opportunity to object to dismissal of a
FCA case and to be heard by the court. That the statute requires
a judicial hearing directly implies the decision to dismiss under
§ 3730(c)(2)(A) is reviewable by the court.
The defendants, claim the statute is susceptible of only one
interpretation is belied by the legal interpretation the USDA
gave the dismissal section prior to filing these motions. John
Golden, Associate General Counsel to the USDA, testified that
prior to May 16, 1994, “the Department was of the view that
some independent legal basis had to be adduced in order to
seek dismissal of these cases and that [§3730](a)(2)(A) provided
47a
Appendix B
an opportunity for the government to seek to dismiss the cases if
there was some other independent legal basis to do so.” Golden,
at 647:15-19. The USDA paper entitled “Overview of False Claims
Act Issues” stated, “the government does not have authority to
dismiss the qui tam cases unilaterally.” Ex. G-1. Although statutory
interpretations by the agency for whose benefit the case was
prosecuted are not binding on the government in this motion,”
they undercut the defendants’ argument that the only plausible
interpretation of § 3730(c)(2)(A) is to give the government
unreviewable discretion.
Because the statutory language of the dismissal section is
ambiguous it is appropriate to consider legislative history. See,
e.g., Funbus Systems, Inc. v. California Pub. Utils. Comm'n, 801
F.2d 1120, 1125-26 (9th Cir. 1986). The legislative history of
§ 3730(c)(2)(A) and the 1986 amendments to the FCA provide
insight to Congressional concern about the government’s lack of
resolve or willingness to prosecute FCA cases.”' See also U.S. ex
20. The Department of Justice, not the USDA, is principally
responsible for interpreting and enforcing the FCA. Golden, at 644;]6-20.
21. The government and the defendants argue that the Senate Report
cited-in the text does not accurately reflect Congressional intent concerning
the final bill passed by both houses. The relevant portion of the Senate
version bill at the time of the Senate Report read as follows:
{the relator] shall be permitted to file objections with the court
and petition for an evidentiary, hearing to any proposed
settlement or to any motion to dismiss filed by the Government.
The Court may grant such an evidentiary hearing only upon a
showing of substantial and particularized need.
132 Cong. Rec. S 9805 (July 28, 1986). Subsequently this passage was
removed from the bill and replaced with the language of the current statute:
(Cont'd)
48a
Appendix B
rel. Shumer v. Hughes Aircraft Company, 95 Daily Journal D.A.R.
11325, 11328-(9th Cir. August 22, 1994); Senate Judiciary
Committee, False Claims Amendments Act of 1986, S.Rep. No.
345, 99th Cong., 2d Sess. 25-26 (1986), reprinted in, 1986
U.S.C.C.A.N. 5266, 5291. The Senate Report states that the
relator’ s right to object to dismissal is intended to serve, “as a
check that the Government does not neglect evidence, cause
undue delay, or drop the false claims cases without legitimate .
reasons.” Jd. (emphasis added). The report articulates that an
evidentiary hearing is appropriate “if the relator presents a
colorable claim that the settlement or dismissal is unreasonable
in light of existing evidence, that the Government has not fully
investigated the allegations, or that the Government’s decision
was based on arbitrary or improper considerations.” Jd.
(Cont'd)
The Government may dismiss the action notwithstanding the
objection of the [relator] if the [relator] has been notified by
the Government of the filing of the motion and the court has
provided the person with an opportunity for a hearing on the
motion.
31 U.S.C. § 3730(c)(2){A). It does not follow from the amendment that the
prior Senate Report no longer reflects Congressional intent with regard to
FCA dismissals by the government. The substance of the dismissal provision
is essentially unchanged from its earlier form except in two respects: (1)
the enacted version of the bill does not explicitly state whether the hearing
on the motion is an evidentiary hearing; (2) the enacted statute does not
require the relator to show a “substantial and particularized need” to receive
a hearing on the motion. Nothing in the legislative history or the amendments
themselves suggest that Congress amended the bill to give the Department
of Justice authority to dismiss FCA cases arbitrarily or for illegitimate
reasons. To so interpret the law would in large measure defeat the express
purpose of the FCA. Congress intended to increase the role of the relator in
FCA litigation “to keep pressure on the Government to pursue the case in a
diligent fashion.” 132 Cong. Rec. H 9382 (October 7, 1986).
49a
Appendix B
Congressional concern about the government’s improper
dismissal of FCA cases was addressed by a hearing requirement
and reference to a legitimate reason for dismissal. All of this
directly contravenes an unreviewable discretion standard.
Defendants implicitly suggest that Congress violated the
constitutional principle of separation of powers by providing
for judicial intervention to review the exercise of prosecutorial
discretion in dismissal of an FCA case. The government argues
that judicial review of prosecutorial discretion is limited to a
determination of whether the government’s conduct infringes
constitutional guarantees, such as equal protection or First
Amendment freedoms. The government and defendants are
correct, the separation of powers doctrine places significant
limits on the judiciary’s power to review prosecutorial
decisions, see United States v. Microsoft, 56 F.3d 1448, 1457-62
(D.C. Cir. 1995), as does the language of the dismissal statute.
Congress could have, but did not, provide a “fair, adequate and
reasonable” review standard as it did in the FCA settlement
approval section. § 3730(a)(2)(B). The court does not substitute
its judgment for that of the executive on matters of policy, just
as the court does not “sit as a ‘superlegislature to weigh the
wisdom of legislation.’ ” Ferguson v. Skrupa, 372 U.S. 726,
731 (1963) (quoting Day-Brite Lighting, Inc. v. Missouri, 342
U.S. 421, 423 (1952)).
However, the constitutional separation of powers does not
require that the government’s exercise of prosecutorial
discretion to dismiss a FCA case remain completely insulated
from judicial review. See United States ex rel. Kelly v. Boeing
Co., 9 F.3d 743, 757 (9th Cir. 1993); cf: Microsoft, 56 F.3d at
1462 (“the district judge is not obligated to accept a [consent
decree} that, on its face and even after government explanation,
50a
Appendix B
appears to make a mockery of judicial power”). In Boeing the
Ninth Circuit addressed several constitutional challenges to the
FCA including, inter alia, that the provisions limiting
government intervention in and dismissal of FCA cases
improperly vest the judiciary with executive authority. Boeing,
9 F.3d at 755-57. The court recognized these provisions “may
affect the government’s prosecutorial discretion to some
degree,” but concluded: “the FCA does not authorize the
judiciary to infringe on prosecutorial discretion beyond the
bounds established” by the Supreme Court in Morrison v. Olson,
487 U.S. 654, 691-93 (1988). Jd. at 757.
Morrison upheld the provisions of the Ethic’s in
Government Act of 1978, 28 U.S.C. §§ 49, 591 et seg., which
allow for the appointment of an “independent counsel” to
investigate and prosecute government officials for violations
of federal criminal laws. The Act was attacked because it
required the Attorney General to show “good cause” to remove
an independent counsel. The Court found this provision
constitutional:
We see no constitutional problem in the fact that
the Act provides for judicial review of the removal
decision. § 596(a)(3). The purpose of such review
is to ensure that an independent counsel is removed
only in accordance with the will of Congress as
expressed in the Act. The possibility of judicial
review does not inject the Judicial Branch into the
removal decision, nor does it, by itself, put any
additional burden on the President's exercise of
executive authority.
Morrison, 487 U.S. at 693 n.33 (emphasis added).
Sla
Appendix B
Morrison’s analysis is applicable here. Congress provided
for judicial review of FCA dismissal motions to ensure that the
executive enforces the FCA in accordance with the intent of
Congress. Congress intended that FCA claims be dismissed for
legitimate government purposes, and not as a result of fraud,
illegality, or lack of political will. S. Rep. No. 345, 99th Cong.,
2d Sess. 25-26 (1986), reprinted in, 1986 U.S.C.C.A.N. 5266,
529i. Judicial review does not inject the court into the
executive’s decision to dismiss. Nor does it place an additional
burden on the executive’s exercise of prosecutorial discretion,
because the constitution itself prohibits arbitrary or irrational
prosecutorial decisions. United States v. Redondo-Lemos, 955
F.2d 1296, 1299-1300 (9th Cir. 1992).
Although courts are reluctant to scrutinize prosecutorial
charging decisions, which involve many practical
considerations outside the purview of judicial review, review
of a decision to dismiss an FCA case is limited to determining
whether the government has a legitimate government interest
that will be achieved by dismissal, which is not arbitrary or
otherwise illegal. Historically courts have made such
determinations of the lawfulness of executive function under a
rational-basis standard. See Reno v. Flores, 113 S. Ct. 1439,
1447-49 (1993) (applying rational basis review to substantive
due process claim involving non-fundamental rights). The
standard of review is deferential to preserve the traditional
authority of the executive branch to make policy choices about
the litigation it pursues. The court’s limited review of the motion
to dismiss does not permit the court “to infringe on prosecutorial
authority to a degree beyond the bounds established by
Morrison” and therefore does not violate the separation of
powers. Boeing, 9 F.3d at 757. .
52a
Appendix B
2. Rational Relation Standard For FCA Dismissal
The motion to dismiss is based not only on the USDA’s
decision, but also the independent judgment of its litigation
counsel, the DOJ. Although under the APA the court determines
whether agency action is arbitrary or capricious by examining:
whether the decision was based on a consideration
of the relevant factors and whether there has been a
clear error of judgment ... Although this inquiry
into the facts is to be searching and careful, the
ultimate standard of review is a narrow one. The
court is not empowered to substitute its judgment
for that of the agency.
Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416
(1971); such an analysis does not directly apply to an agency’s
decision to institute, prosecute, and dismiss litigation. This is
not APA review of agency action under 7 U.S.C. § 608c(15)(B),
rather the motion tests the United States’ decision to terminate
FCA litigation, implemented by the DOJ.
The parties have argued, assumedly by analogy to the APA,
that an agency decision is arbitrary if the agency “has relied on
factors which Congress has not intended it to consider, entirely
failed to consider an important aspect of the problem, offered
an explanation for its decision that runs counter to the evidence
before the agency, or is so implausible that it could not be
ascribed to a difference in view or the product of agency
expertise.” Hawaii Helicopter Operators Ass'n v. F.A.A., 51
F.3d 212, 214-15 (9th Cir. 1995). However, if the agency
examines the relevant facts and reaches a conclusion that is
rationally supported by the facts then its decision is not
53a Ms
Appendix B
arbitrary, Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm
Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983), even if the decision
is a “stupid” one, Riverbend Farms, Inc. v. Madigan, 958 F.2d
1479, 1487 (9th Cir.) (Under APA review, “[s]o long as it
explains its reasons, [an agency] may adopt a rule that all
commentators think is stupid or unnecessary.”), cert. denied,
113 S. Ct. 598 (1992). The extent of factual support required is
“enough to justify, if the trial were to a jury, a refusal to direct
a verdict when the conclusion sought to be drawn is one of fact
for the jury.” United States v. Sunny Cove Citrus Ass'n, 854 F.
Supp. at 673 (quoting Association of Data Processing Serv.
Orgs., Inc. v. Bd. of Governors of the Fed. Res. Sys., 745 F.2d
677, 683 (D.C. Cir. 1984)). Dismissal of litigation by the
executive branch is governed by different rules.
If dismissal serves a legitimate government purpose it is
in the interests of justice, a ground long recognized in criminal
law as supporting government dismissal of a case, except where
the prosecutor’s actions indicate a betrayal of the public interest.
United States v. Gonzales, 158 F.3d 459, 461-62 (9th Cir. 1995).
In analogous situations, courts have applied the “rational
relationship” test to determine whether legislation is
constitutional or executive action violates substantive due
process. See Lockary v. Kayfetz, 917 F.2d 1150, 1155 (9th Cir.
1990); Jackson Water Works, Inc. v. Public Utilities Comm'n,
793 F.2d 1090, 1094 (9th Cir. 1986), cert. denied, 479 U.S.
1102 (1987). -
“Application of the rational basis standard requires a
two-step analysis.” Jackson Water Works, 793 F.2d at 1094.
First, the court must determine whether the challenged action
has a legitimate purpose. Jd. Second, there must be a reasonable
fit between the governmental purpose and the agency action.
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54a
Appendix B
Reno v. Flores, 113 S. Ct. 1439, 1448-49 (1993). There need
not be a “tight fitting relationship” between the two; it is enough
that there are “plausible,” or “arguable,” reasons supporting
the agency decision. See Jackson Water Works, 793 F.2d at
1094. The action need not be the best choice among competing
alternatives, but merely a rational choice. See Vermouth v.
Corrothers, 827 F.2d 599, 603 (9th Cir. 1987). A two step
analysis applies here to test the justification for dismissal: (1)
identification of a valid government purpose; and (2) a rational
relation between dismissal and accomplishment of the purpose.
B. The Government’s Reasons For Dismissal.
In support of the motion Deputy Secretary Rominger
submitted a declaration that in paragraph 11, stated:
The USDA based its decision on a desire to end
divisiveness over the marketing orders, to terminate
protracted and burdensome litigation, to protect the
United States’ taxpayers from continuing and
escalating litigation expenses, to curtail the drain
on private resources resulting from the litigation,
and to allow the growers, agricultural cooperatives,
handlers and others to work together in shaping new
marketing tools.
Rominger dec. § 11.
1. Peace In The Industry
The first interest identified, under the AMAA of 1937 and
of 1947, is “a desire to end divisiveness over the marketing
orders.” The relators counter: neither Act is a legislative
55a
Appendix B
mandate that the USDA encourage cooperation in industries not
regulated by marketing orders, and dismissal of these cases will
not bring industry peace.
The AMAA seeks to achieve orderly market conditions and
stabilize supplies and prices of agricultural commodities for the
benefit of farmers and consumers. The principal mechanism to
achieve these goals is the marketing order.” The success of
marketing orders depends upon industry support for and
compliance with the regulations. Clayton, at 199: 1-13. in the words
of the Supreme Court, the AMAA “contemplates a cooperative
venture among the Secretary, handlers, and producers.” Block v.
Community Nutr. Inst., 467 U.S. 340, 346 (1983). There is no
requirement that any agricultural industry have a marketing order.
Nonetheless, cooperation among industry participants is a purpose
of the Act.
The AMAA does not specify that the Secretary must achieve
cooperation, consensus, or peace in industries that do not have
active marketing orders. The AHAA does not oblige the Secretary
to mediate disputes in industries that have not chosen regulation,
nor to make peace among competitors who do not wish to cooperate
with each other. The government's interest is limited to facilitating
cooperation and enforcing compliance with existing marketing
orders so that the benefits of orderly marketing processes, stable
markets, and higher prices, which the super-majority of the industry
seek to achieve, are not thwarted by a minority of industry members
who oppose regulation.
22. Marketing orders require supermajority industry approval
7 U.S.C. § 608c(a)(B). Defendants inferentially suggest that relators,
by their strident opposition to prorate and relentless pursuit of litigation
against Sunkist and its members, have bee able to thwart the majority
rule within the industry.
56a
Appendix B
The government also argues that the Agricultural Marketing
Act (AMA) of 1946, 7 U.S.C. § 1621, et seg., creates an interest
in eliminating divisiveness in the industry. The AMA was
enacted to improve marketing of agricultural products by
encouraging:
(1) continuous research to improve the marketing,
handling, storage, processing, transportation, and
distribution of agricultural products; (2) cooperation
among Federal and State agencies, producers,
industry organizations, and others in the
development and effectuation of research and
marketing programs to improve the distribution
processes; (3) an integrated administration of all
laws enacted by Congress to aid the distribution of
agricultural products. . . .
7 U.S.C. § 1621. Despite the AMA’s reference to “cooperation”,
the Act does not direct the Secretary to achieve industry
cooperation in the abstract. Rather, the statute directs the USDA
to cooperate with other government agencies, industry
participants and others in development of research and
marketing programs to improve the distribution processes. No
evidence was presented that the existence or nonexistence of
the terminated marketing orders, prorate, or the existence of
dissension or a lack of cooperation has had any deleterious
effect on marketing programs, distribution processes, prices,
handling, storage, processing, or transportation of fruit in the
California-Arizona citrus industry. Ending divisiveness among
industry participants to achieve peace is not a stated AMA goal.
No witness identified any stated policy of the AMA of 1946,
7 U.S.C. § 1621, et seq., as a ground for dismissal.
The evidence proved that dissension and a lack of
cooperation in the citrus industry were caused by the adverse
57a
Appendix B
economic effects of the disputed marketing orders, particularly
prorate. Rominger, at 202. The Secretary believed industry
divisiveness was frustrating the purposes of the AKAA,
Clayton, at 59, that there was a need to restore stability and
cooperation to permit operation of a marketing order, which
was needed to protect orderly markets in times of unusual
weather or other adverse conditions. Rominger, at 219-220;
Clayton, at 59.
The goal of achieving industry cooperation to permit the
development of new marketing methods and to stabilize markets
are legitimate concerns of the USDA, which may be incidentally
advanced by dismissal of these cases. The evidence did not
establish that dismissal of these cases will necessarily bring
“peace” to the industry. To the contrary, adoption by dominant
industry members of unfair regulations under the bloc voting
provisions of the AMAA guarantee perpetuation of divisiveness
and lack of cooperation. Industry cooperation to improve
distribution processes, industry market stability, and increased
prices are valid interests. That dismissal to achieve a “clean
slate” may not achieve industry cooperation or peace does not
prevent a finding that dismissal is reasonably related to
achievement of these interests under the AMAA.
2. Facilitating A New Marketing Order.
A second alleged interest is achieving industry consensus
for new citrus marketing orders. The relators argue the USDA
has no authority to affirmatively build support for a new
marketing order in industries that have not reached consensus
favoring an order.
The government concedes the AMAA does not require the
USDA to “take steps to institute new orders or to replace
58a
Appendix B
terminated orders with new ones.” (Gov’t brief, at 27:15-17).
According to Dr. Clayton, “the way the 1937 Act works it is up
to industry to approach the Department and seek authorization
to use the tools available through Marketing Orders.” Clayton,
at 110:10-12. There are active marketing orders in less than
half the fruit and vegetable industries authorized to establish
marketing orders. Clayton, at 107. The USDA has not sought
to achieve consensus around a marketing order in those
unregulated industries. Clayton, at 107-10. Although AMAA
regulations authorize the USDA to propose marketing orders,
7 C.F.R. § 900.3, the USDA generally waits for industry
participants to propose an order. It cannot impose orders that
are not supported by the industry.
The government suggests it has greater responsibility to
perpetuate marketing orders in the citrus industry, based on
forty years of regulation under orders 907, 908, and 910. Dr.
Clayton characterized the USDA as a “partner” with the industry
that had “some ownership” of the lack of consensus for a new
marketing order. Clayton, at 110-11. However, the USDA has
made no efforts to establish new orders in approximately ten
other industries in which AMAA marketing orders were
terminated in recent years. Clayton, at 111. Termination of the
citrus orders was said to be unique, because unlike the other
industries, in which there was consensus marketing orders were
not needed, many members of the citrus industry indicated
support for a new marketing order.” The USDA terminated the
23. One possible explanation for the apparent absence of industry
consensus for termination of the citrus marketing orders is that those
who were privately unwilling to abide by prorate had great incentives
to support it publicly. Prorate cheaters received higher prices for their
fruit and increased market share at the expense of their law-abiding
competitors. Clayton, at 120-21.
59a
Appendix B
citrus marketing orders to send a message to the citrus industry
and others that widespread intentional violations of a marketing
order will result in the order’s termination. Rominger, at
202:8-19.
NOAC and VOAC reports show considerable efforts
toward amending the orders that bogged down over concerns
about this litigation. These committees went so far as to request
the USDA’s help in developing new marketing orders. Ex. G-69.
Although there was no consensus, many different segments of
the industry preferred amending the existing orders or creating
a new marketing order to having no orders. For example,
Growers for Modern Marketing, a group opposed to prorate,
stated that it believed “a new marketing order is essential.” Ex.
G-57, at 5; see also R-225, R-250. The USDA also referenced
the 1991 referendum to continue the orders. Rominger, at
272-73.
Under USDA regulations the Secretary can propose a
marketing order for listed commodities. 7 C.F.R. § 900.3.
However, neither the AMAA nor the regulations specifically
address whether the USDA may take actions to encourage an
industry to approve a marketing order, once an order is
proposed.
24. The results of the 1991 referendum, in which 19% of the
producers voted to continue the orders, may not have accurately reflected
the extent of the industry’s support for the marketing orders due to
Sunkist’s bloc vote in favor of the orders. The partial results from a
straw poll conducted by Sunkist prior to the 1991 referendum showed
that 64 growers marketing 2,881,146 field boxes of naval oranges favored
continuation of the orders, while 63 growers marketing |,883,757 field
boxes opposed continuation of the orders. Ex. R-19, at 4. These results
reflected the ballots of approximately 511 of Sunkist’s member growers.
60a
Appendix B
The USDA interprets its mandate under the AKAA to
include facilitating the approval of marketing orders in
industries that support the adoption of an order. When industry
members propose an order, the USDA provides information
and assistance. Golden, at 639:7-14. USDA officials work to
foster the development of marketing orders when they believe
an order will promote the policies of the AMAA. The
government argues that encouraging consensus for a new
beneficial marketing order is a legitimate interest under the
USDA.
The government claims this interpretation of the AKAA is
entitled to deference under Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 842-45 (1984):
When a court reviews an agency’s construction of
the statute which it administers, it is confronted with
two questions. First, always, is the question whether
Congress had directly spoken to the precise question
at issue. If the intent of Congress is clear, that is the
end of the matter; for the court, as well as the agency,
must give effect to the unambiguously expressed
intent of Congress. If, however, the court determines
Congress has not directly addressed the precise
question at issue, the court does not simply impose
its own construction on the statute, as would be
necessary in the absence of an administrative
interpretation. Rather, if the statue is silent or
ambiguous with respect to the specific issue, the
question for the court is whether the agency’s answer
is based on a permissible construction of the statute.
Id. at 842-43. “[A]n agency’s interpretation of its own organic
statute and regulations are accorded deference, ‘unless the
6la
Appendix B
administrative construction is clearly contrary to the plain and
sensible meaning of the regulation.’ ” Borregard v. National
Transp. Safety Bd., 46 F.3d 944, 945 (9th Cir. 1995) (quoting
Hart v. McLucas, 535 F.2d 516, 520 (9th Cir. 1976)).
The AMAA does not specifically address whether the
USDA can promote the development of new marketing orders
by resolving disputes that prevent an industry from reaching
consensus. However, the USDA’s interpretation, that the
AMAA permits the USDA to resolve industry disputes and
foster consensus for a new marketing order, when industry
interest for a new order appears, is reasonable and not contrary
to the plain meaning of the statute.
The evidence established that substantial sentiment was
expressed to the USDA, through NOAC and VOAC meetings,
the Dooley meetings and independent industry members, for
development of new orders. Relators counter that there is no
desire or need for new orders. Even if the USDA’s perception
that the industry seeks new orders is mistaken, it was proved
the view is not held in bad faith. After the 1993 suspension of
prorate and the 1994 termination of the marketing orders, the
citrus industry has shown no signs of disorderly or unstable
markets. Rominger, at 220. This does not mean new orders are
unnecessary. Marketing orders in part are to assure stable
markets and prices when weather, supply interruptions, or other
market disrupting forces occur. Rominger, at 219-20.
USDA-perceived industry sentiment for a new marketing
order is a valid government interest under the AMAA which
the USDA can act to facilitate. -That dismissal of the cases
will not assure the adoption of new orders does not make
dismissal irrational.
62a
Appendix B
3. Financial impact on industry Participants
A third interest is “to terminate protracted and burdensome
litigation, . . . [and] to curtail the drain on private resources
resulting from the litigation.” Dismissal is said to be necessary
to protect economic viability of the citrus industry. The
government argues the continuing cost of litigating these cases
and the potential for massive damage awards threatens to
bankrupt the defendant packinghouses.
Protecting the financial health of the agriculture industry
is a cornerstone of AMAA policy. The Act declares: “disruption
of the orderly exchange of commodities in interstate commerce
impairs the purchasing power of farmers and destroys the value
of agricultural assets which support the national credit structure
and that these conditions affect transactions in agricultural
commodities with a national public interest.” 7 U.S.C. § 601(c).
Congress has decided that the protection of farmers’ purchasing
power and preservation of agricultural assets is in the national
public interest. Protecting citrus handlers from financial ruin
is a legitimate government interest.”
At the evidentiary hearing the packinghouse defendants
presented expert testimony showing their inability to satisfy
25. It could be argued that Congress primarily intended the AMAA
to protect agricultural producers, not handlers. For example, the Act is
intended to assure parity prices for farmers (not packinghouses), 7 U.S.C.
§ 602(1), and a marketing order can become effective without handler
support if it has sufficient support from farmers and the Secretary makes
certain findings. 7 U.S.C. 608c(9). Nevertheless, the declared policy of
protecting “agricultural assets” is broad enough to encompass the assets
of those who market agricultural products, the handlers, as well as those
who produce them. 7 U.S.C. § 601. Moreover, financial destruction of
~ handlers would necessarily harm the economic interest of farmers who
utilize handlers’ services to process and market fruit.
63a
Appendix B
the potential damage awards in these cases. The evidence
showed that most, if not all, of the twelve packinghouses,
anonymously analyzed, would be bankrupted by the maximum
possible penalties under the FCA. The average penalty under
the FCA is seventeen times greater than under the AMAA.
Sexton at 433. The destructive potential of these cases was
convincingly established.* The government also argues that
the expense to the taxpayers and the defendants of litigating
these cases justifies dismissal. However, no evidence
quantifying litigation costs incurred by the government and the
defendants, nor the effect of litigation costs on any defendant’s
financial condition was proferred.
The relators point to Deputy Secretary Rominger’s
testimony that protecting the economic viability of the
defendants was not “determinative,” Rominger, at 265, to
support their contention that adverse economic impact was not
a reason for dismissal. The USDA did not then have before it
the financial evidence adduced at the evidentiary hearing. Policy
makers within the USDA were informed by staff that the FCA
cases could bankrupt some packinghouses. Rominger at 203,
264-65. The Secretary’s counsel stated the economic effect on
the industry and the defendants was considered in the dismissal
analysis. Schnoor dep at 21:1-8.
26. Dr. Carman’s testimony as to the extent of the impact on
county-wide employment and personal income from judgments against
the packinghouse defendants was less convincing. The economic model
he used was not developed to measure the impact on a community of a
judgment against a single business entity. Rather, it was designed to
model the consequences of diffuse infusions or withdrawals of capital,
such as taxes. Carman, at 496-97. Dr. Carman was unaware of any
instances in practice or in economic literature in which the model was
used for this purpose. Carman, at 497.
64a
Appendix B
The packinghouse defendants contend the government had
evidence of potential financial harm through information
furnished in the settlement process and communications about
the financial condition of at least one packinghouse defendant.
Ex. R-204. APA review of agency action under the arbitrary
and capricious standard does not permit an agency to justify its
actions by advancing post hoc rationalizations or to rely on
evidence not presented during the adjudicatory or rulemaking
process. Burlington Truck Lines, Inc. v. United States, 371 U.S.
156, 168-69 (1962); Louisiana-Pacific Corp. v. Block, 694 F.2d
1205, 1210 (9th Cir. 1982). This APA standard of review is not
applicable to the United States’ decision to dismiss FCA cases.
The validity of the decision to dismiss is determined by the
reasons and evidence presented to the court in support of and
opposition to the motion. Review is not limited to the reasons
or evidence relied upon by the agency at the time it arrived at
the decision to move for dismissal.
A principal purpose of the AMAA is to ensure the economic
vitality of the agriculture industry. The USDA determined that
the burden of-this protracted litigation and the potentially
enormous penalties that could result, threatened to destroy part
of the citrus industry. Dismissing these FCA cases is a rational
means of advancing the legitimate government interest under
the AMAA to protect the purchasing power of farmers,
agricultural assets, and the national credit structure in the
statutorily defined national public interest.
4. Conservation Of Government Resources.
The government can legitimately consider the burden
imposed on the taxpayers by its policies. Here, the government
concluded that expenditure of the extensive resources required
65a
Appendix B
to continue prosecution and defense of all prorate violation
cases was disproportionate to the benefits obtainable. To
continue the AMAA enforcement actions, the government
would have to bear the expense of hearings on the 1984
marketing orders plus the cost of the AMAA litigation and any
litigation challenging the validity of the marketing orders. In
light of the divisiveness over the citrus marketing orders, USDA
concluded the costs of continued litigation of AMAA and FCA
cases outweighed benefits of curing the procedural deficiencies
in the 1984 orange marketing orders and any economic recovery
under the FCA.
Relators argue the government should continue to prosecute
violators under FCA cases because: (1) FCA claims based on
prorate violations are not affected by invalidity of the
underlying marketing orders, See United States v. Kapp, 302
U.S. 214, 216-18 (1937) (upholding, validity of criminal
prosecution under former False Claims Act for
misrepresentation in transaction governed by Agricultural
Adjustment Act (AAA) after the AAA was found void); and
(2) the government can allow the relator to bear the expense of
the litigation at no cost to the United States. The government
believes FCA claims cannot be asserted under the AMAA; and
wishes to preserve its right to challenge subject matter
jurisdiction on appeal. Rominger, at 212-13. It seeks to remain
in control of the FCA litigation based on its belief relators do
not adequately represent the United States’ interests due to their
long history of hostility to federal regulation under the AMAA,
extended acrimonious litigation against the government and
industry competitors, and their goal of maximizing the amount
of monetary recovery against defendants.
USDA also argues continued internal staff costs incurred
in these FCA cases are enormous, although unquantified.
66a
Appendix B
Concerns about the burden on government resources are valid,
even if relators assumed all of the expense of prosecuting the
FCA cases.
5. Equity Within The Industry.
Equitable treatment of all handlers who cheated is a
separate interest. The government points out that if the FCA
cases proceed, primarily Sunkist and some of its affiliated
packinghouses will be held accountable for prorate violations,
while the rest of the industry will receive amnesty. It contends
this is unfair to the FCA defendants, particularly since potential
liability under the FCA greatly exceeds damages and penalties
that could be assessed under the AMAA. Relators do not deny
that the executive is vested with the power to grant amnesty to
law violators.
The Fifth Amendment precludes the government from
employing classifications that are “wholly without any rational
basis.” United States Department of Agriculture v. Moreno, 413
U.S. 528, 538 (1973). The government does not claim it is
compelled by the constitutional principle of equal protection
to dismiss the FCA cases. Rather, it asserts a legitimate
government interest in treating similarly-situated prorate
cheaters equally. See, e.g., Morici Corp. v. United States, 500
F.Supp. 714, 723 (C.D. Cal. 1980), rev'd on other grounds,
681 F.2d 645 (9th Cir. 1983). The AMAA forfeiture cases and
these FCA cases are aimed at punishing the same type of
wrongful conduct: shipping fruit in excess of prorate and failing
to accurately report and pay assessments for unreported
shipments. Since the AMAA cases have been dismissed, if the
FCA cases are prosecuted one group of cheaters, composed
almost entirely of Sunkist affiliated packinghouses, will be
67a
Appendix B
punished while all other prorate violators will go unpunished. The
evidence established cheating was widespread in the industry:
Sunkist, Dole, Central California Orange Growers, numerous
independents, Sequoia, Sunny Cove, Eco Farms, Suntreat, and
Cecelia Packing have been identified. Lewis, at 306-3 12.
Relators counter that dismissal is inequitable because it allows
packinghouses that cheated to keep their “ill-gotten gains.”
However, FCA recovery will not compensate innocent
packinghouses for profits or market share lost to prorate violations.
Any FCA recovery will only benefit Sequoia (an alleged
wrongdoer), its counsel, and the United States Treasury. FCA
penalties are completely unrelated to the economi~ harm caused
to innocent handlers by prorate cheaters. Unlike aititrust and unfair
competition laws, the FCA is not designed for use by private
entities to deter anticompetitive conduct or to compensate resulting
losses. Dismissal of these FCA cases has no direct economic impact
on innocent handlers.”’ Dismissal of the FCA cases will further
the government’s interest in equal treatment for all prorate cheaters
by making its policy of amnesty universal. The government also
believes that its dismissal of Sequoia from an AMAA enforcement
case the government valued at three million dollars militates in
favor of dismissal. The government’s “equal treatment of violators”
objective is a valid purpose that will be furthered by dismissal.
The government has articulated legitimate reasons for
dismissal of these cases, which will be served by dismissal; the
burden shifts to relators to demonstrate that dismissal is fraudulent,
arbitrary and capricious, or illegal.
27. The only possible benefit to innocent handlers from prosecution
of the FCA cases is the potential that some of their competitors will be
bankrupted by this litigation.
68a
Appendix B
C. Relators’ Objections.
i. Dismissal Is Not Fraudulent.
Relators argue the government has committed fraud on the
court, perpetrated by three categories of false representations
made by government trial counsel to the court.
The first alleged misrepresentation is the government’s
statement at the August 1993 hearing on its motion to intervene
that it would litigate the FCA claims against the defendants if
settlement efforts were unsuccessful.” (Aug. 9, 1993, Trans.
at pp. 22-24). Relators claim the government misled the court
about its true intent for intervening, because two USDA officials
testified the government’s sole purpose for intervening was to
negotiate a global settlement, See Rominger, at 214, 261;
Golden, at 634; although both these witnesses testified USDA
policymakers had not discussed what they would do if the efforts
at settlement failed. Rominger, at 261-62; Golden, at 634.
28. The relators have also argued that the government is judicially
estopped from dismissing these FCA cases based upon representations
made in connection with the motion to intervene. This argument was
rejected in the prior Memorandum Opinion, at 10-12. Judicial estoppel
bars a party from manipulating the judicial process by asserting
inconsistent legal positions in the same litigation. See Morris v.
California, 966 F.2d 448, 452 (9th Cir. 1991), cert. denied, 113 S. Ct.
96 (1992). The statement of the government’s trial counsel, made during
oral argument on the motion to intervene, that the government intended
to prosecute the FCA cases was not an unalterable legal position. The
government's change in policy toward the FCA cases was the result of
changed circumstances in the industry. Judicial estoppel is an equitable
doctrine. /d. Equity is not served by compelling the government to
prosecute a case that undermines legitimate government interests.
69a
Appendix B
The statements of the government’s counsel appear to be
inconsistent with the USDA’s intent in entering the cases. The
DOJ, not the USDA, has ultimate responsibility for prosecution
of FCA cases. It is unclear whether the government’s trial
counsel knew the USDA, which in retrospect states it never
had the intent to prosecute these FCA claims to conclusion,
was so informed when he represented to the Court the United
States would prosecute the FCA claims if necessary. The
absence of evidence whether the DOJ was fully advised by its
client, USDA in August 1993, that USDA would in no event
try the FCA cases to conclusion prevents a finding that the
government’s trial counsel misrepresented the then existing
intent of the USDA or the DOJ. As case manager, the DOJ’s
intent about prosecuting these FCA cases may have differed
from the USDA’s.
Assuming, arguendo, that the government’s representation
that it would litigate the FCA cases was false, the intervention
order could have been rescinded to remove the government as
plaintiff in the case. The government st??] had the ability to
reintervene for the purpose of bringing this motion to dismiss.
Good cause” for reintervention could be established upon a
showing of changed circumstances, to justify the government’s
exercise of its statutory authority to dismiss. The DOJIs failure
to reach a global settlement, the industry’s inability to form
consensus on new marketing orders, and the announcement of
the Sunny Cove decision prompted the USDA to reconsider its
prosecution of violations of the 1984 citrus marketing orders.
29. The FCA provides that the government may intervene in a FCA
case “upon a showing of good cause.” 21 U.S.C. § 3730(c)(3); see United
States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 753 (9th Cir. 1993), cert.
denied, 114 S. Ct. 1125. No limit is placed on the circumstances or the
number of intervention motions that the government may bring.
70a
Appendix B
Clayton, at 132-34, 138-44, 186-87. Even if the government’s
prior intervention was premised on a misrepresentation,
independent grounds existed for reintervention.
The second alleged misrepresentation concerns jurisdiction.
When these cases were first filed, the government
unsuccessfully argued that subject matter jurisdiction did not
exist under the FCA. Relators claim the government
subsequently acquiesced to subject matter jurisdiction by: (1)
filing the November 3, 1993, amicus brief in the Stark Packing
case, No. CV-F-89-058; (2) filing the third amended complaint
asserting FCA claims in the Magnolia case; and (3) representing
on August 9, 1993, that it would try the FCA cases if necessary.”
Whether the government acquiesced in subject matter
jurisdiction is irrelevant for the purposes of this motion. The
government seeks to dismiss these cases for the reasons stated
in its motion, not for absence of jurisdiction based ona lack of
substantive merit of the FCA claims.
Finally, the relators argue the government deceived the
court about the status of the global settlement and deliberately
delayed making settlement submissions to impede the progress
of the cases and inferentially to provide time for a political
solution. The evidence does not disclose fraud by the
government concerning the global settlement negotiations. The
evidence proved the government made substantial good faith
efforts to settle all cases over an extended time penod. The
government claims it did not submit any proposed settlements
30. In each case the government explicitly reserved its right to
challenge subject matter jurisdiction on appeal. The anamoly of when
or in what context such an appeal might be taken, in view of the
undertaking of DOJ trial counsel to prosecute the FCA claims to recovery,
has not been explained.
Tla
Appendix B
to the court for approval within the time established by the
September 9, 1993, Settlement Procedures Order because it did
not receive acceptable settlement offers. The government
updated the Court with accurate settlement status reports on
November 8, 1993, and January 28, 1994. No party could
reasonably have anticipated the April 1994, Sunny Cove
decision. There is no evidence that the government wrongfully
delayed or did anything but utilize its best efforts to induce
settlements of all outstanding AMAA and FCA cases.
No other evidence of fraud was adduced. Although the
apparent inaccuracy of DOJ’s trial counsel’s statements to the
court about continued prosecution of the FCA cases is
disturbing, relators did not depose AUSA Bensing or otherwise
offer evidence of what information had been provided to him
by the USDA regarding future prosecution of the FCA claims
at the time he made such statements to the Court. The USDA
position on the litigation has changed over time from active
AMAA enforcement, to global settlement, to industry-wide
dismissal. The government does not stand to gain from any
alleged fraud. Nor is there any evidence that packinghouse
defendants procured the intervention of the United States by
wrongful means for the sole purpose of dismissing the cases.
No fraud to procure dismissal of the FCA cases has been proved.
2. Improper Or Undue Influence.
Dismissal must not be the product of improper or undue
influence on government officials. However, citizens are
entitled to petition the government for redress of grievances
by advocating the passage or enforcement of laws. See Eastern
R.R. President's Conf. v. Noerr Motor Freight, 365 U.S. 127,
135-38 (1961) (Sherman Act does not apply to “mere
72a
Appendix B
solicitation of governmental action with respect to the passage
and enforcement of laws”).
Members of Congress may seek to influence agency action.
See Radar Ass'n on Defending Airwave Rights, Inc. v. United
States Dept. of Transp., 47 F.3d 794, 807 (6th Cir. 1995),
petition for cert. filed 63 U.S.L.W. 3849 (May 18, 1995).
Congressional influence is improper only if the agency is asked
to consider factors not relevant to the decision and the agency’s
determination is affected by the extraneous considerations.
Sierra Club v. Costle, 657 F.2d 298, 409 (D.C. Cir. 1981);
Fallini v. Hodel, 725 F. Supp. 1113, 1118 (D. Nev. 1989), aff'd,
963 F.2d 275 (9th Cir. 1992). “Americans rightly expect their
elected representatives to voice their grievances and preferences
concerning the administration of our laws ... it [is] entirely
proper for Congressional representatives vigorously to represent
the interests of their constituents before administrative agencies
engaged in informal, general policy rulemaking.” Sierra Club,
657 F.2d at 409.
Relators claim that improper pressure and undue influence
from the defendants and members of Congress tainted the
USDA’s decision to seek dismissal of the FCA cases.
Defendants strenuously campaigned for dismissal of the FCA
cases after the May 16, 1994 announcement it would terminate
marketing orders, dismiss the AMAA cases, and withdraw from
the FCA cases. Defendants believed it was unfair not to also
dismiss the FCA cases. They exercised their right to petition
the government by letters, phone calls, and personal visits to
USDA officials, the DOJ, and members of Congress. There is
no evidence that the defendants engaged in bribery, fraud,
coercion, or a conspiracy with government officials to violate
the law. Cf. California Motor Transport Co. v. Trucking
73a
Appendix B
Unlimited, 404 U.S. 508, 510, 512-15 (1972) (antitrust
immunity for lobbying activities not applicable to bribery,
fraud, or conspiracy to harm a competitor). The frequency and
manner of defendants’ contacts with government officials prior
to the USDA’s decision to seek dismissal of the FCA cases
give the appearance that defendants had unique access, but do
not of themselves establish improper influence.
Nor did Congressional contacts with the USDA and the
DOJ constitute undue influence. The evidence shows the
contacts among members of Congress, the USDA and the DOJ
concerned subject matter that could properly be discussed. For
example, Senator Dennis DeConcini wrote in a letter to the
DOJ that dismissal “would be consistent with the actions of
the Department of Agriculture and indeed give the citrus
industry a fresh start.” Ex. G-26. Representative Elton Gallegly
stated his support for the USDA’s policy “objective of ending
the divisive and costly litigation which has afflicted the citrus
industry for over a decade.” Ex. G-27. Senator Diane Feinstein
requested that the DOJ “consider” the USDA’s request for
dismissal. Ex. G-28.
None of the Congressional contacts threatened to take
action adverse to the USDA or the DOJ. See D.C. Federation
of Civil Ass’ns v. Volpe, 459 F.2d 1231, 1246-47 (D.C. Cir.
1971), cert denied, 405 U.S. 1030 (1972). In D.C. Federation
Representative Natcher publicly stated that unless the Secretary
of Transportation approved a proposed bridge, money
earmarked for the construction of the District of Columbia’s
subway system would be withheld. There were no threats to
hold USDA or DOJ funding “hostage,” nor were any other
retributive consequences mentioned.
.
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74a
Appendix B
The cases cited by the relators are distinguishable. In S.E.C.
v. Wheeling-Pittsburgh Steel Corp., 648 F.2d 118, 125-28 (3rd
Cir. 1981), the court found it an abuse of process for an agency
to issue a subpoena based upon improper congressional pressure
and without an objective determination by the agency. Here,
there is no evidence of improper pressure or that the USDA
and DOJ failed to make independent determinations that
dismissal was justified. In Pillsbury Co. v. F.T.C., 354 F.2d
952 (Sth Cir. 1966), the court found intense questioning by a
Senate subcommittee of FTC officials about a case pending
before the agency created an appearance of partiality and
deprived the corporation involved of due process. Relators and
their allies exerted vigorous pressure on the USDA, DOJ, and
Congress persons, advocating that the cases not be dismissed.
No evidence establishes that the conduct of any legislator
crossed the line of fair advocacy.
This case is analogous to Sierra Club v. Costle, in which
Senator Byrd met with officials from the Environmental
Protection Agency to “express ‘strongly’ ” his view that
proposed regulations would adversely affect his constituents.
657 F.2d 298, 408 (D.C. Cir..1981). There, the only evidence
of extraneous pressure was a newspaper article stating that
Senator Byrd “hint[ed]” that the President needed his support
on other matters pending before Congress. /d. at n.539. The
D.C. Circuit found such evidence too insubstantial to warrant
a finding of unlawful congressional interference. /d.
Relators proffer letters from Sunkist Vice-President
William K. Quarles thanking several members of Congress for
“the major successful effort . .. made to influence the DOJ to
file the motions to dismiss the [FCA] cases.” Ex. R-167. Mr.
Quarles was aware of letters and phone conversations between
75a
Appendix B
members of Congress and the USDA and DOJ, but he did not
know the content of those communications.*' Quarles, at 676-79.
Since Quarles did not know the substance of the Congressional
contacts, it cannot reasonably be inferred from his reference in
the letter to the term “influence,” that any member of Congress
applied undue or improper pressure. The officials who actually
spoke with members of Congress testified that there was no
Congressional use of undue influence. Rominger, at 210.
Relators implicitly suggest the government’s decision was
motivated by improper influence because Sunkist, and the law
firm representing the packinghouse defendants, Baker Manock
& Jensen, made contributions to the political campaigns of
Democratic members of Congress totalling $170,000 over the
last 15 years. However, relators do not argue that the political
contributions were illegal. Contributing to political compaigns
is protected by the First Amendment. Buckley v. Vallejo, 424
U.S. 1, 58 (1976). That some of the defendants and their counsel
have made political contributions does not amount to undue or
improper influence. No link between any contribution and the
requested dismissal was established.
The relators have failed to show that the decision to seek
dismissal resulted from improper influence or illegal pressure.
3. Dismissal Is Not Arbitrary Or Capricious.
Relators raise several arguments in support of their claim
the government’s decision to dismiss is arbitrary. None of these
31. In fact, Mr. Quarles testified that he did nut know whether
several of the Senators or Representatives that he thanked actually
contacted the DOJ. Quarles, at 676-79. He stated that he thanked
everybody who “may have been interested” because “politicians love to
be thanked.” Quarles, at 679:23-25.
76a
Appendix B
arguments are persuasive. Relators contend the government
acted arbitrarily by failing to consider reasonable alternatives;
i.e., the government should have chosen one of two “less
draconian” alternatives to dismissal: (1) cure the Sunny Cove
procedural deficiencies in the 1984 marketing orders; or (2)
amend the AMAA cases to state FCA claims.”
The USDA considered the first alternative but rejected it
for two reasons: (1) it believed it could not properly address a
tendency finding made 10 years ago, and (2) it was concerned
that an attempt to address the negative tendency finding would
spawn even more litigation. Clayton, at 77-78; Rominger, at
199-200. Nor can relators force the USDA to undertake a
quasi-rulemaking proceeding to reverse the 1984 tendency
finding. E.g., American Horse Protection Ass'n. v. Lyng, 812
F.2d 1, 7 (D.C. Cir. 1987).
The USDA also declined the second alternative, amending
its AMAA cases to state FCA claims, because the DOJ contends
the FCA does not apply. Rominger, at 201, 212-13. FCA
penalties sought by relators were excessive and not related to
the amounts gained by violators which were the amounts of
penalties sought by USDA under the AMAA.” The government
is not required to choose the best or least intrusive alternative,
so long as its decision is rational. Vermouth v. Corrothers, 827
32. Relators and the government agree that FCA claims premised on
AMAA violations survive even if the underlying marketing orders are
invalid.
33. Congress eliminated a treble damages provision of the Agricultural
Act of 1961. S. Rep. No. 566, 87th Cong., (Ist Sess. (1961), reprinted in
1961 U.S.C.C.A. No. 2243. No AMAA treble damages penalty has since
been enacted.
77a
Appendix B
F.2d 599, 603 (9th Cir. 1987). Although the government rejected
alternatives that relators prefer, its grounds for dismissal are
legitimate, which is sufficient.
Relators claim the USDA has arbitrarily abandoned its
policy of strictly enforcing prorate. USDA in the past undertook
to fully investigate and prosecute AMAA violations through
operation Fair Enforcement. See Exs. R-22, R-27, R-45.
Relators say it is capricious for the government to reverse its
enforcement policy and pursue amnesty for all prorate cheaters.
However, when the circumstances change, the government is
free to change its policies concerning the management and
prosecution of its own litigation and implementation and
enforcement of laws and regulations it administers. The decision
to grant amnesty is a political one related to farm policy. U.S.
Const. Art. II, § 2. An agency’s decision not to prosecute or
enforce, by criminal or civil means, is a decision generally
committed to an agency’s absolute discretion. Heckler v.
Chaney, 105 S.Ct. 1649, 1655 (1985). One remedy for relators
and others who disagree with the executive’s political decision,
and the legislators who supported it, is to exercise their electoral
franchise.
Here, the government changed its policy in response to
the Sunny Cove decision, its failed attempts to settle the FCA
and AMAA cases, and a perceived inability to cure unlawful
marketing orders. It decided that general amnesty was
preferable to prosecution under the FCA, which threatened to
bankrupt part of the industry through the imposition of penalties
greatly in excess of relief obtainable under the AMAA.
Although the government changed its policy, it did so on the
basis of rational government interests. Under the standard of
review for dismissal of FCA cases, as well as decision-making
a
78a
Appendix B
under the APA, the government does not act arbitrarily when it
provides a reasoned explanation for its change of policy. See
Association of Data Processing v. Board of Governors, 745
F.2d 677, 683 (D.C. Cir. 1984) (agency action arbitrary and
capricious when “it is an abrupt and unexplained departure from
agency precedent”) (emphasis added). Here, the decision was
made only after input to the USDA and DOJ from all concerned.
Relators argue no new facts were presented to the USDA
between May 16, 1994, when it announced its decision to
withdraw from the FCA cases, and May 20, 1994, when the
USDA asked the DOJ to consider dismissing the FCA cases.
Relators claim USDA’s request on May 20 was a “reversal” of
its previous policy to withdraw from the FCA cases and allow
the relators to proceed. ¢
Deputy Secretary Rominger testified that the US DA would
have sought dismissal of the FCA cases on May 16, had it been
aware of the government’s right to do so under § 3730(c)(2)(A)-
Rominger, at 206:10-14, 239:14-18. He stated that the USDA’s
intent on May 16, 1994, was “to dismiss all of the litigation
that [the USDA] possibly could.” Rominger, at 206:13-14.
When the USDA became aware of the possibility that
§ 3730(c)(2)(A) authorized dismissal of the FCA cases, it
promptly requested that the DOJ consider dismissing these
cases, since dismissal would further the USDA’s stated
objectives in the May 16, 1994, announcement. Golden, at
659: 1-6.
Relators have not demonstrated that the government’s
reasons underlying the motion to dismiss are arbitrary or
capricious.
79a
Appendix B
4. Improper Considerations Of Relators’ Status.
Relators claim dismissal was based on the following
improper factors pertaining to their “status”: (1) that they are
competitors of the defendants; (2) that Sequoia has challenged
the regulations they now seek to enforce; (3) that Sequoia is
trying to des troy Sunkist; (4) that Sequoia is an alleged violator
of prorate; (5) that relators are trying to obtain a competitive
advantage over defendants.
Relators have not met their burden of showing that these
factors actually motivated the government’s decision to dismiss.
The only evidence that any of such factors were considered by
the government is a letter fronrAssistant Attorney General
Hunger responding to three members of Congress who wrote
the DOJ to express their support for dismissal of the FCA cases.
The letter stated:
If granted, we hope the Motion to Dismiss, made at
the urging of the Department of Agriculture, and
supported by an affidavit of the Deputy Secretary
of Agriculture, will effectuate USDA policy, ensure
fairness in DOJ’s enforcement proceedings, and end
the anomolous situation whereby one member of an
industry is obtaining a competitive advantage by
selectively enforcing regulations (which the
company itself has challenged) against certain
competitors.
See Exs. G-46, G-47, G-48. The letter describes “an anomalous
situation” not that the decision was based on such factors.
Government officials who testified at the evidentiary hearing
denied that Sequoia’s status as an industry competitor or alleged
80a
Appendix B
prorate cheater was a basis for dismissal. See Clayton, at 105-
06; Rominger, at 241-42.
When deciding whether to intervene in or dismiss an FCA
case, the government may properly consider factors bearing
upon the relators’ suitability or incentive to prosecute the case.
Such factors may involve status as it relates to motivation and
competence to sue under the FCA. For example, as competitors
of the defendants, relators have an incentive to seek damages
and maximum penalties that could bankrupt defendants and
provide relators an advantage by eliminating competing
industry members. This could lead relators to prosecute the
cases in a manner inconsistent with the government’s interest
under the AMAA to preserve the economic integrity of the citrus
industry. There was evidence that Sequoia challenged the
AMAA regulations under which it was sued by the government.
There was evidence that a Sequoia principal, Mr. Pescosolido,
admitted Sequoia engaged in prorate cheating. Evans dep. at
48-50. Consideration of the relators, motives is not
inappropriate. There is no evidence that improper status
considerations motivated the decision to dismiss.
5. Dismissal Of The Lemon Cases Is Not Irrational.
Relators assert, first, the lemon order did not suffer from
the legal deficiencies identified in the Sunny Cove decision, no
negative tendency finding had to be reversed to preserve the
lemon order’s validity. Second, the lemon industry did not
demonstrate the degree of divisiveness existing in the navel
and valencia orange industries, although there were some
handlers, such as Sequoia, who voiced opposition to the use of
prorate for lemons. Clayton, at 147-48; Rominger, at 270-71.
Third, the USDA did not solicit amendments to the lemon order.
8la
Appendix B
Although only four FCA cases were pending in the lemon
industry at the time DOJ sought dismissal, the USDA was
investigating other lemon handlers for prorate violations and
officials perceived lemons and oranges were on “equal footing”
because lemon prorate violations were comparable to prorate
cheating in oranges and potentially as pervasive. Clayton, at
146-147, Golden, at 652-654, Lewis, at 316. To preserve the
financial stability of the lemon industry, the USDA rationally
believed, for the same reasons it sought to dismiss the orange
cases, that it was necessary to dismiss the lemon cases. This
decision is supported by substantial evidence.
Il
CONCLUSION
These FCA cases arise from a chapter of federal farm policy
history of which no one can be proud. The USDA permitted
adoption and continuation of restrictive flow to market rules
that were advocated by a dominant citrus cooperative (Sunkist),
and its supporters, which caused industry-wide cheating and
law violations. Unbridled economic self-interest drove citrus
industry members to ignore and violate with impunity
regulations they caused to be enacted. These extremes of lawless
conduct culminated in a chaotic regulatory environment in
which lawbreakers profited while law-abiding industry
members lost profits and market share. In response the USDA
first instituted AMAA enforcement, then suspended prorate,
and sought global settlements. After failed settlement efforts
and invalidation of the orange marketing orders, USDA
terminated all the disputed marketing orders, dismissed all
AMAA enforcement litigation, and now seeks to dismiss all
FCA cases to “wipe the slate clean.” Although relators view
82a
Appendix B
this as a loss of political will, the United States has advanced
legitimate government interests to justify its decision.
Ultimately the decision on this motion is compelled
under the Constitutional doctrine of separation of powers, which
precludes the judiciary from interfering with political choices
made by the Executive in the exercise of prosecutorial
discretion. The FCA does not give relators the power to dictate
federal government policy in the area of agricultural regulation
or to decide whether amnesty for fraud on the government
should be withheld. Those discretionary political decisions
reside with the Executive, in discharge of its duties under the
AMAA, as authorized by the legislature. Nor does the FCA
authorize the judiciary to substitute the court’s judgment for
that of the Executive Branch, as to what is in the best interests
of the citrus industry or the United States Treasury. It is the
Executive Branch which is vested with constitutional authority
to execute and enforce the law. U.S. Const., Art. II, § 3.
In addressing these motions, the Court’s function is limited
to determining whether the decision to dismiss these FCA cases
is based upon one or more legitimate government interests
which will be advanced by dismissal, is not arbitrary and
capricious, fraudulent, or illegal. The ultimate choice to forego
prosecution of the law breakers is political, vested in the
Executive Branch, which possesses the power to grant amnesty.
The Executive has decided continued prosecution of these
cases will perpetuate industry divisiveness, inhibit the AMAA
regulatory environment in the Arizona-California citrus
industry, prevent industry cooperation to achieve orderly
markets, impede the development of distribution processes,
destroy the economic health of part of the industry, bankrupt
83a
Appendix B
members, and thereby damage the national economic interest.
USDA reached the judgment that amnesty serves to facilitate
adoption of new marketing orders, conserve industry and
government resources, and achieve equity among all industry
law violators. USDA and DOJ determined all these interests
outweigh the benefits of a potential recovery for the federal
treasury and the in terrorem effect of vigorous law enforcement
under the AMAA. Dismissal is rationally related to
accomplishment of these legitimate government interests. The
DOJ independently exercised its discretion to determine that
these FCA cases do not serve the public interest.
Potential consequences of dismissal are a loss of public
confidence in the government’s fair and even-handed
enforcement of the law and precedent that could weaken the
incentive of relators to pursue FCA cases. Neither consequence
is ineluctably compelled. It is unlikely that the unique
circumstances underlying these cases will reoccur and the risk
of deterring future qui tam cases is miminal. If such conditions
arise again, correction of the problem lies with Congress and
the Executive.
Relators complain that they cannot match Sunkist’s
political access, tax and antitrust immune status, and bloc voting
power granted by law. Congress has vested agricultural
co-operative corporations with unique advantages to advance
the economic well-being of agricultural industries and their
members. Where, as here, the protected entity utilizes its
strength to facilitate passage of rules which harm rather than
help an industry, resulting in industry-wide cheating and
law-breaking, the Executive may act, and has done so, to
terminate the regulations to send a message that unfair or
unworkable rules will not be perpetuated. If co-ops are
84a
Appendix B
disserving the public interest, the legislature may reexamine
the wisdom of the underlying statutory scheme that grants
Co-ops special powers.
Once the dismissal of these FCA cases is determined, as it
has been, to be for valid governmental purposes, which are not
arbitrary and capricious, not the product of fraud or improper
political influence, the Court’s power to deny the dismissal
motion is exhausted and deference to the Executive’s decision
required. What the court thinks of the merits of the decision to
dismiss these cases, right or wrong, whether law breakers should
be held accountable; whether the reasons advanced are
persuasive, or the ultimate consequences fair or unfair, matters
not, for the court lacks the power to substitute its judgment for
that of the Executive.
The motion to dismiss all these pending FCA cases is
GRANTED, with prejudice. In the exercise of the court’s
discretion, in view of the novelty and difficulty of the issues
presented, each party shall bear its own costs and attorneys
fees. The United States shall prepare a judgment of dismissal
in conformity with this opinion and lodge it with the court within
five (5) days following the date of service of this opinion.
SO ORDERED.
DATED: September 26, 1995.
s/ Oliver W. Wanger
Oliver M. Wanger
UNITED STATES DISTRICT JUDGE
85a
APPENDIX C— MEMORANDUM OPINION AND ORDER
OF THE UNITED STATES COURT FOR THE EASTERN
DISTRICT OF CALIFORNIA RE: UNITED STATES’
MOTION TO DISMISS FILED MARCH 3, 1995
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
CV-F-88-566-OWW
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
SUNLAND PACKING HOUSE COMPANY,
Defendants.
CV-F-89-002
Consolidated with
CV-F-89-004
CV-F-89-006
CV-F-89-007
CV-F-89-008
CV-F-89-012
CV-F-89-013
CV-F-89-014
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
V.
SAN JOAQUIN CITRUS, and SUNKIST GROWERS, INC.,
Defendants.
86a
Appendix C
CV-F-89-050
Consolidated with
CV-F-89-051
CV-F-89-052
CV-F-89-053
CV-F-89-054
CV-F-89-055
CV-F-89-056
CV-F-89-057
CV-F-89-058
CV-F-89-059
CV-F-89-060
CV-F-89-061
CV-F-89-062
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
BAIRD-NEECE PACKING CORP., and SUNKIST
GROWERS, INC.,
Defendants.
CV-F-91-194-OWW
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
OXNARD LEMON COMPANY, et al.,
Defendants.
87a
Appendix C
CV-F-91-195
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
MISSION CITRUS COMPANY, et al.,
Defendants.
CV-F-91-196
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
VENTURA PACIFIC COMPANY, et al.,
Defendants.
CV-F-91-197
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
Vv.
SATICOY LEMON ASSOCIATION, et al.,
Defendants.
88a
Appendix C
CV-F-93-5016-OWW
UNITED STATES ex rel. LISLE BABCOCK,
Plaintiff,
v.
DOLE CITRUS, INC.,
Defendant.
CV-F-91-195
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
MISSION CITRUS COMPANY, et al.,
Defendants.
CV-F-91-196
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
v.
VENTURA PACIFIC COMPANY, et al.,
Defendants.
89a
Appendix C
CV-F-91-197
UNITED STATES ex rel. SEQUOIA ORANGE COMPANY,
Plaintiff,
V.
SATICOY LEMON ASSOCIATION, et al.,
Defendants.
MEMORANDUM OPINION & ORDER
RE: UNITED STATES’ MOTION TO DISMISS
I. BACKGROUND
This case presents a question of first impression: Under what
circumstances may the United States dismiss a facially meritorious
False Claims Act claim over the opposition of the relator. The
United States (“Government”) moves to dismiss all of the claims
brought by Sequoia Orange Company (“Sequoia”)! under the False
Claims Act (“FCA”) against various citrus packing houses. The
Government brings these motions under 31 U.S.C. § 3730(c)(2)(A).
The Government also brought suits against many of the
defendants in these cases for violations of the Agricultural
Marketing Agreement Act 1937, 7 U.S.C. § 601, et seq.
(“AMAA”). It has dismissed or now seeks to dismiss all AMAA
claims against defendants which were handlers of citrus, primarily
Valencia oranges and lemons.
1. The Government is also moving to dismiss cases in which Lisle
Babcock is the realtor. For the sake of simplicity, Sequoia is used to
refer to both Sequoia Orange Company and Lisle Babcock.
90a
Appendix C
The history of these cases is complicated because of the
number of parties and the length of time the cases have existed.
Not all of the parties are situated identically. However, with one
exception,’ these distinctions are irrelevant. The issue presented
by this motion is the same in each case; the Government filed an
omnibus brief for all of the cases and Sequoia has filed a single
response.
Sequoia filed the first of these cases in December of 1988. Its
claims against the defendants are premised upon violations of the
AMAA. Under the AMAA, the Secretary of the Department of
Agriculture is authorized to issue marketing orders regulating the
sale of various commodities, including oranges and lemons. See
Cecelia Packing v. USDA, 10 F.3d 616 (9th Cir. 1993), cert. denied,
114 S. Ct. 1125 (1994). Marketing orders limit the quantity of a
particular commodity that may be marketed by handlers. 7 U.S.C.
§ 608c. Handlers who exceed their allotment are subject to civil
fines. § 608c(14). Sequoia alleges that the defendants exceeded
their marketing quotas and reported false information to the
Department of Agriculture in order to avoid the penalties for
violation of the marketing orders and to avoid paying assessments
on unreported fruit. 7
The Government was initially hostile to Sequoia’s suits. It
moved to dismiss the claims on the ground that there was no
2. The cases involving the four lemon defendants, Ventura Pacific,
Saticoy Lemon Association, Oxnard Lemon Company, and Mission
Citrus Company, differ from the orange cases in that the Government
elected to proceed with these cases during the initial sixty day period
(which was extended, for good cause). §3730(b)(4)(A). Sequoia’s
argument that the Government’s dismissal power is limited when it
intervenes at a later date, under §3730(c)(3), does not apply to the lemon
defendants. Likewise, Sequoia’s claim that the Government is judicially
estopped from seeking dismissal does not apply to these defendants.
9la
Appendix C
jurisdiction under the FCA to enforce liability for false
statements made in connection with the AMAA because, a
reverse false claim of the type alleged was not actionable under
the FCA. The court denied this motion on July 5, 1989. A similar
motion was brought by the defendants and was denied on July
25, 1990.
After the case had been pending for over four years the
Government moved to intervene as plaintiff under 31 U.S.C.
§ 3730(c)(3). Sequoia opposed intervention because the
Government earlier took the position the FCA claims were
legally insufficient. The Government argued it should intervene
to facilitate a global settlement of all the FCA and AMAA cases
arising out of the citrus marketing orders, representing to the
Court, that, if necessary, it would litigate the FCA claims
despite the fact that it believed there was no liability.? The
Government has always maintained that its AMAA claims are
meritorious. On September 9, 1993, Government intervention
was permitted for good cause. No settlement has been reached
in these cases. The Government now seeks to dismiss the FCA
claims.
II. DISCUSSION
This motion presents two issues. First, what standard of
review, if any, applies to the Government’s motion to dismiss.
Second, has the Government satisfied that standard. In its
opening brief, the Government asserts that “but for affording
the relator an opportunity for a hearing, the right to dismiss is
unconditional.” (Govt’s Brief at 6-7.)) Essentially, the
Government contends that the Court has no power to review
3. The Government reserved its right to challenge the validity of
Sequoia’s FCA claims on appeal.
Bik PD tee ran
SO sae es :
92a
Appendix C
its decision to dismiss the cases. Nevertheless, the Government
asserts that under any standard of review it has presented a
sufficient basis for dismissal.
A. False Claims Act
The Supreme Court has repeatedly stated that the “chief
purpose” of the False Claims Act is “to provide for restitution
to the government of money taken from it by fraud.” United
States v. Bornstein, 423 U.S. 303, 314 (1976) (quoting United
States ex rel Marcus v. Hess, 317 U.S. 537, 551-52 (1943));
Rainwater v. United States, 356 U.S. 590, 592 (1958) (“It seems
quite clear that the objective of Congress was broadly to protect
the funds and property of the Government from fraudulent
claims. . .”) . Congress included the remedy of double damages
and fines “to make sure that the government would be made
completely whole.” Bornstein, 423 U.S. at 314-15. The FCA
also serves to deter and to punish fraud against the government.
United States v. McLeod, 721 F.2d 282, 285 (9th Cir. 1983); Jn
re Commonwealth Companies, inc., 913 F.2d 518, 526 (8th Cir.
1990).
Congress included the qui tam provisions in the FCA for
several reasons. First, it was recognized that the government
could not itself detect all of the fraud perpetrated against it.
The qui tam provisions encourage private citizens possessing
information about fraud on the government to provide that
information to the government. United States ex rel. La Valley
v. First Nat'l Bank, 707 F. Supp. 1351, 1355 (D. Mass. 1988)
(“The legislative history in both houses of Congress reveals a
sense that fraud against the Government was apparently so
rampant and difficult to identify that the Government could
use all the help it could get from private citizens with knowledge
93a
Appendix C
of fraud.”); see also 31 U.S.C. §3730(d) (providing an award,
in the amount of a percentage of the government’s recovery, to
persons providing information regarding false claims);
§ 3730(h) (protecting informants who provide information
regarding fraud by their employers from retaliation by the
employer).
Second, the Government has limited resources and cannot
pursue every case in which it appears the Government has been
defrauded. In the event that the Department of Justice decides
not to prosecute a case initiated by the relator, Congress
provided that the relator could proceed with the case in the
name of the United States. A further reason for permitting the
relator to sue on behalf of the government was the concern that
the Executive Branch did not have the political will to prosecute
certain cases. One circuit has noted that the 1986 amendments
to the FCA expanded the qui tam provisions to “encourage more
private enforcement suits.” United States ex rel. Williams v.
NEC Corp., 931 F.2d 1493, 1497 (11th Cir. 1991) (citing 1986
U.S. Code Cong. & Admin. News at 5288).
B. Standard of Review
Section 3730(c)(2)(A) states that “(t)he Government may
dismiss the action notwithstanding the objections of the person
initiating the action if the person has been notified by the
Government of the filing of the motion and the court has
provided the person with an opportunity for a hearing on the
motion.” The statute is silent as to what standard of review
should be applied to dismissal. The Government maintains that
the Court has no authority to review a motion to dismiss under
§ 3730(c)(2)(A), or that review is limited to excluding abuse
of prosecutorial discretion. Sequoia argues that no meritorious
DRG ee ee ea ee re
94a
Appendix C
FCA claims should be dismissed. Alternatively, either the
Fed.R.Civ.P Rule 41(a) standard of prejudice applies, or the
FCA § 3730(c)(2)(B) “fair, adequate and reasonable under all
the circumstances” standard of review for approving settlements
should be applied to dismissals.
1. The Government's Late Intervention Does Not Prohibit It
From Moving For Dismissal.
Initially, Sequoia asserts that the Government cannot move
to dismiss because it did not intervene at the beginning of the
case. The Government has an unrestricted right to intervene
within 60 days (plus extensions for good cause) from the date
that a relator files a FCA claim. 31 U.S.C. § 3730(b)(2). If the
Government elects to proceed with the case, then it has “the
primary responsibility for prosecuting the action,” though
relator retains “the right to continue as a party to the action,”
subject to certain limitations. § 3730(c)(1) . If the Government
declines to intervene then the relator is entitled to prosecute
the case. § 3730(c)(3). However, even if the Government
declines to intervene during the initial 60 day period, “the court,
without limiting the status and rights of the person initiating
the action, may nevertheless permit the Government to intervene
at a later date upon a showing of good cause.” Jd.
Sequoia relies upon section 3730(c)(3) for the proposition
that the Government’s superior right to manage and control
the litigation, provided in 3730(c)(2), only exists if the
Government intervenes within the initial 60 day period. This
interpretation of the gui tam provisions was rejected by the
Ninth Circuit. “When the Government intervenes late in the
action, a fair interpretation of the statute is that the Government
has a similar degree of control over the litigation as if it had
95a
Appendix C
intervened at the start.” United States ex rel. Kelly v. Boeing
Co., 9 F.3d 743, 752 & n.8 (9th. Cir. 1993), cert. denied, 114
S. Ct. 1125 (1994). This includes the right to move for dismissal
under § 3730(c)(2)(A) . The Kelly opinion notes that this
interpretation assures the constitutionality of the qui tam
provisions. /d. Sequoia’s interpretation, under which the
Government forfeits its right to manage the case if it does not
intervene at the beginning, raises significant concern over
separation of powers. It impairs the Government’s right to
intervene. Although the Government intervened late in these
cases, pursuant to the good cause provision of section
3730(c)(3), it retains the right to move for dismissal.
2. The Government Is Not Barred From Moving For Dismissal
By Estoppel or Laches.
Sequoia contends the Government is barred from
dismissing this case by the doctrine of judicial estoppel. “As a
general principle, the doctrine of judicial estoppel bars a party
from taking inconsistent legal positions in the same litigation.”
Morris v. California, 966 F.2d 448, 452 (9th Cir. 1991), cert.
denied, 113 S. Ct. 96 (1992). “The purpose of the doctrine is to
protect the integrity of the judicial process” and to prevent
parties from playing “fast and loose.” Jd. at 433. It is “an
equitable doctrine invoked by the court at its discretion.” Jd.
(quoting Russel v. Rolfs, 893 F.2d 1033, 1637 (9th Cir. 1990),
cert. denied, 501 U.S. 1260 (1991)).
According to Sequoia, the Government has taken
inconsistent positions with regard to its duty to prosecute the
FCA claims against Defendants. At the August 9, 1993, hearing
on the Government’s motion to intervene in these cases, counsel
for the Government stated that the Government would diligently
96a
Appendix C
prosecute Sequoia’s FCA claims. On the basis of this
representation, the Court found good cause tu permit
intervention under § 3730(c)(3). The Government now seeks
dismissal, which Sequoia maintains is a breach of the prior
“commitment” to prosecute the FCA claims. The Government
responds that the doctrine of judicial estoppel prohibits a party
from taking inconsistent “legal” positions. It contends that it
did not take a “legal” position when it represented to the Court
that it would diligently pursue the FCA claims.
Whether the Government’s commitment to pursue
Sequoia’s FCA claims is characterized as a “legal” position or
not, it does not bar the Government from seeking dismissal.
The Government states its prior commitment was made in good
faith and not to manipulate the judicial process. It contends
that its policy regarding its cases has changed in response to
several events following intervention, including the decision
in United States v. Sunny Cove Citrus Ass'n, 854 F. Supp. 669
(E.D. Cal. 1994), which found invalid Navel and Valencia
orange marketing order amendments. Moreover, the
Government could have brought this motion to dismiss even if
it had not intervened in the case. Juliano v. Federal Asset
Disposition Ass'n, 736 F. Supp. 348, 349 (D.D.C. 1990), aff'
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