Opposition Brief — United States ex rel. Costner v. URS Consultants, Inc.
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No.03-65 ~ eS
IN THE AUS 1 1 229
Supreme Court of the Anited
UNITED STATES, ex rel., PAT COSTNER, ET AL..,
Petitioners,
V.
URS CONSULTANTS, INC., MORRISON KNUDSEN
CORPORATION, MRK INCINERATION, INC. AND
VERTAC SITE CONTRACTORS,
Respondents.
On Petition for Writ of Certiorari to the
United States Court of Appeals
for the Eighth Circuit
BRIEF FOR RESPONDENTS IN OPPOSITION
JOHN C. MARTIN *
MARY BETH BOSCO
PATTON BOGGS LLP
2550 M Street, N.W.
Washington, D.C. 20037
(202) 457-6000
STEVE SHULTS
SHULTS LAW FIRM, LLP
200 W. Capitol Avenue, Suite 1600
Little Rock, AR 72201
(501) 372-2301
| CHARLES R. NESTRUD
' CHISENHALL, NESTRUD & JULIAN, P.A.
400 W. Capitol Avenue, Suite 2840
Regions Bank Center
Little Rock, AR 72201
* Counsel of Record (501) 372-5800
August 11, 2003 Counsel for Respondents
WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D.C. 20001
QUESTION PRESENTED
Whether the decision of the Eighth Circuit Court of
Appeals, which (i) recognized that materiality is an implicit
element of a False Claims Act violation; (ii) evaluated, based
on the facts before it, whether Respondents’ cooperation with
the government agency and disclosure of problems with the
contract’s performance negated the element of intent; and
(iii) required Petitioners, with the benefit of five years of
discovery, to plead their fraud case with particularity, creates
a conflict with decisions of this Court or vith the other circuit
courts of appeal concerning the False Claims Acct.
(i)
il
CORPORATE DISCLOSURE STATEMENT
FOR RESPONDENTS URS CONSULTANTS, INC.,
MORRISON KNUDSON CORPORATION AND
VERTAC SITE CONTRACTORS
Pursuant to Supreme Court Rule 29.6, Respondents URS
Consultants, Inc. (“URS”), Morrison Knudson Corporation
(“MK”) and Vertac Site Contractors (“Vertac”) respectfully
submit their Corporate Disclosure Statements:
URS Corporation is the parent of URS Consultants, Inc.,
a Delaware Corporation and a wholly-owned subsidiary.
No publicly-held company owns 10 percent or more of
URS’s stock.
MK is an entity wholly owned by Washington Group
International, Inc. (Ohio). MK is not a separate corporate
entity that is traded on a stock exchange; therefore, no
company (other than Washington Group International, Inc.
(Ohio)) owns 10 percent or more of the stock of the company.
Vertac is a joint venture between Morrison Knudson
Corporation and MRK Incineration, Inc. Each entity owns a
one-half interest in Vertac.
TABLE OF CONTENTS
Page
RP PRN Ey MON OIE BD vv sssesensesnssessoscececessevessoensceveses i
CORPORATE DISCLOSURE STATEMENT ............. ii
DPR PE FURS PRM IIRE MIO ou scescesuesvseccoscnteosevevsovvessese vi
a EIU cn sncncedabnsndiahabecibiwssnshanensadesubsensssnvons l
a hited hth chad enlace daneteasccaedaes l
TEETER ee 2
II ilo resabt a shiddlieticpecandassnethsieninssnineteansonessasseuses 2
Fis RRA, FEES LORY vcccscsscsscsscosssosonssoes 2
B. THE EIGHTH CIRCUIT’S DECISION.......... 4
C. PETITIONERS ATTEMPT TO RELITI-
GATE FACTS BEFORE THIS COURT.......... 5
I Gis die russchdnisabacsbisesshscabanbibienacsssebiaenencnuts 8
I. THE EIGHTH CIRCUIT’S' DECISION
DOES NOT CONFLICT WITH DECISIONS
OF THIS COURT AND DOES NOT
PRESENT AN ISSUE FOR RESOLUTION
|: See, Ae a 9
A. The Eighth Circuit’s Decision Is Not In
Conflict With Decisions Of This Court..... 9
1. Neder and Wells do not conflict with
the conclusion that materiality is an
element of False Claims Acct liability. . 10
2. Application of the Wells and Neder
framework to the False Claims Act
does not yield the conclusion that
materiality is not an element of
RI PUI dilaicdutihichancscnllansticenrinauisasosiceniestaaesiak 11
(iii)
neemeeaties
iV
TABLE OF CONTENTS—Continued
Page
B. The Eighth Circuit’s Decision Is In
Accord With Long-Standing False
Claims Act Jurisprudence And Does Not
COINS FEI BI. ccsricintniannintenianininarinnniics 14
Il. THE EIGHTH CIRCUIT’S DECISION ON
MATERIALITY DOES NOT CONFLICT
ie EOL y, | Em | & Os >. SEC ReeeeeeenCON 15
A. There Is No Conflict In The Circuits......... 16
B. Southland And Cantekin Do Not Create
PTS Th FIG CIID, vncecescecesincencecssionns 17
Ill. THERE IS NO CONFLICT AMONG THE
CIRCUIT COURTS OVER WHETHER
GOVERNMENT KNOWLEDGE MAY
SERVE AS A DEFENSE TO INTENT IN A
FALSE CLAIMS ACT CASE. ...ccccssvsscoressvcesess 20
A. The 1986 Amendments To The False
Claims Act Did Not Abolish The
Government Knowledge Defense.............. 21
B. The Circuit Courts Uniformly Recognize
That Government Knowledge May Serve
As A Defense To Intent In A False
CE Fi iivcinsinti cdegitentcitndictnindarens 22
C. The Eighth Circuit’s Decision Is
Consistent With All The Other Circuit
Courts That Also Address __ the
Government Knowledge Defense As A
Factual Inquiry Into The Information
Provided To The Government.................... 24
Vv
TABLE OF CONTENTS—Continued
Page
IV. THE EIGHTH CIRCUIT’S DECISION ON
RULE 9(B) DOES NOT CREATE AN
ISSUE WORTHY OF REVIEW BY THIS
CAPEIES E » scicespsnsductensaninhinieabechiianimamadeiaaanaiaae 26
CI AFI cierstnsinrtsveisianienitensinnianbiasiamaaniamies 29
vi
TABLE OF AUTHORITIES
CASES Page
Bly-Magee v. California, 236 F.3d 1014 (9th Cir.
DON } xcsevsaccersesensnetbsesseseemansenenilniamemmaaeaa 27
Equal Employment Opportunity Comm'n vy.
Arabian American Oil Co., 499 U.S. 244
(BGG). nrecrsceccsrssessesonecesenicenssseneteelaneennesieninnets 14
Export Group v. Reef parang Inc., 54 F.3d 1466
(Dthe Clip. 19D5)...vsscereceresscccesasesscssncsvevsetiiocenssinenses 20
Gold v. Morrison-Knudsen Co., 68 F.3d 1475 (2d
Cie, 19S) ..covncesecrescorssesvevesensoetspnveassoanmvensebetnaneets 27
Harrison v. Westinghouse Savannah River Co.,
176 F.3d 776 (Gan Cit. 1DPD) wcrrecececscssescssscnesecnes 16, 26
Luckey v. Baxter Healthcare Corp., 183 F.3d 730
(Tite Cin. 1DDB). ..ervererssscssssereenscsoccssesnnbennbsensntonntinen 16
Neder v. United States, 527 U.S. 1 (1999)... passim
Rabushka ex rel. United States v. Crane Co., 122
F.3d S59 (Sila Cig. 1997) ..ccreccoceresscsesvsecvessosesessen 15
Richardson v. Ramirez, 418 U.S. 24 (1974) ......... 20
Shaw v. AAA Engineering & Drafting, Inc., 213
F.3d S29 ClOth Cir, 20GB) ...vvcscccsssrecessrsesessessesess 22, 25
Tyger Construction Co. v. United States, 28 Fed.
Cl. 35 (Ped, Cl. 1DDS) .csccsorcsosorevsncsseneseinsnsnnnannees 17
United States ex rel. Becker v. Westinghouse
Savannah River Co., 305 F.3d 284 (4th Cir.
2002), cert. denied, 123 S. Ct. 1929 (2003)....... 22, 24
United States ex rel. Berge v. Board of Trustees
of the Univ. of Alabama, 104 F.3d 1453 (4th
CO, FOBT) ..ceserseseersesevesoonsstersiien eens 16
United States ex rel. Butler v. Hughes Helicopter
& McDonnell Douglas, CV 89-760, 1993 WL
841192 (C.D. Cal. Aug. 25, 1993) (unpub-
lished decision), aff'd, 71 F.3d 321 (9th Cir.
Vil
TABLE OF AUTHORITIES—Continued
Page
United States ex rel. Butler v. Hughes
Helicopters, Inc., 71 F.3d 321 (9th Cir.
PION acsenceesertnccunsncqnsnteennmennaitibiininuninnt 21, 22, 23, 24, 25
United States ex rel. Cantekin v. University of
Pittsburgh, 192 F.3d 402 (3d Cir. 1999)........ 15, 18-20
United States ex rel. Clausen v. Laboratory
Corp. of America, Inc., 290 F.3d 1301 (Lith
i FI wicascsnncconstnnstnnnneciinemesennsessentavasbannsseanien 27
United States ex rel. Costner v. United States,
SUT F.38 SES CO Cae. Bete cccccncctenscccscoenssscssens passim
United States ex rel. Durcholz v. FKW Inc., 189
F.38 SEZ (7s Cae. FOGG) cnccccecnsevsnsntensesccnseseses 22, 24, 26
United States ex rel. Hagood v. Sonoma County
Water Agency, 929 F.2d 1416 (9th Cir. 1991)... 23
United States ex rel. Hopper v. Anton, 91 F.3d
AABN CO Cat. 1G FG ccsceveicecspsesrccniccesanecncncessosserse 16
United States ex rel. Kreindler v. United Techs.
Corp., 985 F.2d 1148 (2d Cir.), cert. denied,
FOS UD. SIS COI) eiitsntetcnrnriniesnitanitninnioneninninnns 23
United States ex rel. Lamers v. City of Green
Bay, 168 F.3d 1013 (7th Cir. 1999) ........ eee 16
United States ex rel. Lee v. SmithKline Beecham,
Inc., 245 F.3d 1048 (9th Cir. 2001) ........... cece 27
United States ex rel. Roby v. Boeing Co., 184
F.R.D. 107 (S.D. Ohio 1998).................sceesssees 17
United States ex rel. Thompson ev.
Columbia/HCA Healthcare Corp., 125 F.3d
BD CSE Cae. BT ancacesesensceseesnsicencsenesesenneesnacnene 16
United States ex rel. Totten v. Bombardier Corp.,
ZUG BOG S42 CC. Ct, BOE) wececscerivnssccnsscnsvesis 27
United States ex rel. Wilkins v. N. America
Construction Corp., 173 F. Supp. 2d 601 (S.D.
DIE: BI Pctnecesnsctacectesesiesnconstennstecuaninsanviammensinivetas 17
Vill
TABLE OF AUTHORITIES—Continued
Page
United States ex rel. Willard v. Humana Health
Plan of Texas, Inc., No. 02-40285, 2003 WL
21467963 (Sth Cir. June 26, 2003) .......ccccccccceees 27
United States v. Bornstein, 423 U.S. 303 (1976)... 13
United States v. Data Translation, Inc., 984 F.2d
Se COU CO. DED sccccessshecsstioninennesetansiiiensinisiees 16
United States v. Hill, 676 F. Supp. 1158 (N.D.
ae WO i incielvasiaetiliisiiaieicatarde ee 17
United States v. Klein, 230 F. Supp. 426 (W.D.
Pa. 1964), aff'd, 356 F.2d 983 (3d Cir. 1966)... 17
United States v. McNinch, 356 U.S. 595 (1958)... 13
United States v. Q Int'l Courier, Inc., 131 F.3d
FE ls IT Wcdintitiie ute 7 15
United States v. Sigma Int'l Inc., 300 F.3d 1278
Le RR eer ke OEM 19
United States v. Southland Mgmt. Corp., 288
F.3d 665 (Sth Cir. 2002), vacated and decided
on other grounds, 326 F.3d 669 (Sth Cir.
ME I va stinitthentnibitkdnceniteetccs 15, 17-19, 23, 24
United States v. Southland Mgmt. Corp., 95 F.
Supp. 2d 629 (S.D. Miss. 2000)..........eccccccceseeee 17
United States v. Wells, 519 U.S. 482 (1997).......... passim
Wang ex rel. United States v. FMC Corp., 975
F.2d 1412 (9th Cir. 1992) woo. ecccccsssescsceceses 25
STATUTES AND RULES
edi |, EEE R ET Sele 11
ee Rae © Re Pecinietineiibactinmeuicinaneet l
eS aS ek een e Oe 11-12
FO EB © FT Pivcitcisiesicasntenndctiassistocssacsieee 13
31 U.S.C. § 3730(b)(4) (1982).....ceccecescesccsscececeee. 21
31 U.S.C. § 3730(b)(4) (1986)... cccccccecescsceceeseseee 21
Ply Sess SNe Oe WU itosiemasemnsiscdsnetaineieen es 2). 5, 26
tae LO )
ix
TABLE OF AUTHORITIES—Continued
MISCELLANEOUS
Page
S. Rep. No. 99-345 (1986), reprinted in 1986
Aired SOM sarnscesesonerssesenscovsverosovscnsasescess 13,14
IN THE
Supreme Court of the United States
No. 03-65
UNITED STATES, ex rel., PAT COSTNER, ET AL.,
Petitioners,
V.
URS CONSULTANTS, INC., MORRISON KNUDSEN
CORPORATION, MRK INCINERATION, INC. AND
VERTAC SITE CONTRACTORS,
Respondents.
On Petition for Writ of Certiorari to the
United States Court of Appeals
for the Eighth Circuit
BRIEF FOR RESPONDENTS IN OPPOSITION
OPINION BELOW
The opinion of the United States Court of Appeals for the
Eighth Circuit (Pet. App. 1-11) is reported at United States ex
rel. Costner v. United States, 317 F.3d 883 (8th Cir. 2003).
JURISDICTION
The United States Court of Appeals for the Eighth Circuit
issued its opinion on January 28, 2003 and denied rehearing
on April 9, 2003. The Petitioners filed this Petition on July 8,
2003. The jurisdiction of this Court is invoked under 28
U.S.C. § 1254.
ae Se
2
INTRODUCTION
The False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA” or
“Act”), imposes liability on any person who presents a false
or fraudulent claim for payment, or makes a false statement in
support of a claim for payment, to the United States
Government. Passed in 1863 as a response to defense
contractor fraud during the Civil War, the Act has developed
a large body of jurisprudence.
In 1995, Petitioners filed a qui tam complaint against
Respondent environmental remediation contractors. The
United States declined to intervene. Following five years of
discovery and two weeks of trial, the District Court, as
affirmed by the Eighth Circuit Court of Appeals, found
that Petitioners had failed to state a claim under the Act and
prove their case in every respect. United States ex rel.
Costner v. United States, 317 F.3d 883 (8th Cir. 2003)
(Pet. App. 1-11). To reach its decision, the Eighth Circuit
applied long-standing FCA precedent to the facts before it.
The Eighth Circuit’s decision does not create new FCA law
and it does not contradict cases of this Court or of its sister
courts of appeals.
STATEMENT
A. PROCEDURAL HISTORY
This FCA case arises from Respondents’ environmental
remediation of the Vertac Superfund Site in Jacksonville,
Arkansas. From 1948 through 1987, the Vertac Site was
home to various chemical, herbicide, and pesticide production
facilities. Following abandonment of the Site in 1987, EPA
initiated an emergency removal action under _ the
Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”) to dispose of the approximately
28,000 drums of dioxin-contaminated waste remaining on
site. Pet. App. 3.
3
In 1989, the Arkansas Department of Pollution Control and
Ecology (“ADPC&E”) contracted for the on-site incineration
of the chemical waste with MRK Incineration, Inc., which
subsequently assigned the contract to Respondent_Vertac Site
Contractors (“VSC”). Pet. App. 3. During the summer of
1992, ADPC&E recognized that its funds were insufficient to
complete incineration of the waste. Consequently, EPA
assumed primary responsibility for the performance of the
ongoing response action. EPA hired Respondent URS
Consultants, Inc. (“URS”) as its oversight contractor, and
VSC was retained as the subcontractor to continue the
incineration. Pet. App. 4. |
By the time EPA had taken over the incineration operations
in 1993, many of the Petitioners had already filed a number of
unsuccessful lawsuits and had instigated multiple investiga-
tions by EPA and the State concerning their allegations of
wrongdoing at the Site. Undeterred, Petitioners filed this suit
in 1995. Petitioners charged that VSC and URS fraudulently
induced EPA to continue incineration ai the Site, and then
submitted to EPA false claims for payment for their
remediation work. The United States declined to intervene.
After five years of discovery, the District Court set
December 18, 2000 (shortly before the April 2001 trial date),
as the deadline for submission of dispositive motions.
Respondents filed dispositive motions in advance of that date
and, following a December 15, 2000 hearing, the District
Court granted Respondents’ motions, with one exception.
Plaintiff Don Daniel had testified in his deposition that on
two specific occasions he had intentionally miscalibrated a
monitoring device known as the “PT-125,” which measured
draft in the kiln for the incinerator. The court determined to
————
proceed to trial with respect to those two specific dates of
alleged tampering.
However, under the rubric of “pattern and practice”
evidence, the District Court permitted Petitioners to present
evidence at the April 2001 trial relating not just to tampering
with the PT-125, but to all of their allegations of wrong-doing
at the site. Following the eleven-day trial, the District Court
entered judgment for Respondents. Based on detailed
findings of fact, Pet. App. 15-33, the District Court found that
(i) Respondents had not knowingly submitted a false claim or
statement to the Government regarding tampering with the
PT-125; (ii) Respondents had not knowingly submitted a false
claim or statement to the Government regarding their
performance of work at the Vertac Site; and (iii) Petitioners
had failed to present any evidence from which knowledge of
falsity or intent to submit a false claim may be inferred. Pet.
App. 33. The District Court also rejected each and every one
of Petitioners’ allegations of wrongdoing by Respondents.
Pet. App. 15-33.
Petitioners appealed, raising issues concerning the pre-trial
motions and limited evidentiary rulings. The District Court’s
decisions were affirmed by the Eighth Circuit Court of
Appeals in all respeets. Pet. App. 11.
B. THE EIGHTH CIRCUIT’S DECISION
In affirming the District Court’s summary judgment
decision dismissing the majority of Petitioners’ FCA claims,
the Eighth Circuit recognized that for a claim for payment to
' By agreement of the parties, the District Court divided the trial into
two phases. In Phase 1, Petitioners had the burden of proving that
tampering with the PT-125 occurred on the two dates in question and,
if so, whether Respondents had knowledge of the tampering as defined “e
in the FCA. Had Plaintiffs prevailed in Phase 1, the second phase of
trial would have involved the issue of whether the tampering events
were material.
5
be false under the statute, the claim must be material in some
way to the payment decision. Pet. App. 6-7. The appellate
court, however, declined to define the “precise contours of
the materiality requirement” because, under any formulation,
“[p]laintiffs have failed to produce evidence raising a genuine
issue of material fact as to whether the allegedly withheld
information was even relevant to the EPA’s payment
decision-” Pet. App. 7.
The Eighth Circuit also reviewed the trial court’s inquiry
into EPA’s knowledge of the operational difficulties at the
site, concluding that Respondents’ openness with EPA
“negated the required scienter” for liability under the Act.
Pet. App. 9. “A contractor that is open with the government
regarding problems and limitations and engages in a
cooperative effort with the government to find a solution
lacks the intent required by the Act.” Pet. App. 8. Finally,
the appellate court affirmed the noncontroversial proposition
that fraud must be pled with particularity, and affirmed the
District Court’s dismissal of Petitioners’ claims under Fed. R.
Civ. P. 9(b). Pet. App. 9-11.
C. PETITIONERS ATTEMPT TO RELITIGATE
FACTS BEFORE THIS COURT
Relators rely on certain factual assertions in support of
their petition. Based on the evidence, the District Court
rejected each one of these claims, and the Court of Appeals
affirmed. Though they might disagree with the lower courts’
findings, that disagreement does not form the basis for
granting certiorari.
First, Petitioners allege that Respondents concealed facts
concerning the Site’s operation in order to fraudulently
induce EPA to award them the incineration contract in 1993,
and then continued to hide the problems, including worker
safety issues, to fraudulently procure payment under the
Lo ae 2
contract. Pet. 9-10. The District Court, as affirmed by the
Eighth Circuit, found otherwise:
EPA participated at the Vertac Site from the inception of
the cleanup. “PA had a Remedial Project Manager
assigned to the ‘te, as well as a team of engineers, a risk
assessment specialist and other scientists. During the
period of the State’s contract, EPA regularly communi-
cated with the State and had access to the documents
concerning the State contract and the performance of the
incinerator. EPA also reviewed State reports concerning
the site and conducted regular discussions with State
personnel about various aspects of the operation.
Pet. App. 17.
The District Court further concluded that much of the
information concerning occurrences at the Site came from
Respondents’ detailed reports to the Government:
Also following June 8, 1993, URS and VSC provided
EPA with multiple reports of the site operations,
including: daily reports; weekly reports (which included
daily reports, shift engineer reports, unusual incident
reports, and photographs); monthly reports; special
reports authorized by Work Assignment Forms as to
individual aspects of the incineration operations; RCRA
compliance audit reports; quality assurance reports;
payment reports; fee award reports; and air monitoring
reports. URS’s shift engineers were present on-site 24
hours per day, and their contemporaneous shift reports
were included in the reports to EPA.
Pet. App. 17. Petitioners cannot relitigate these findings
before this Court.
The petition focuses much attention on air monitoring data
from VSC’s on-site monitors that Petitioners claim
Respondents hid from EPA. Pet. 10. These “facts,” too, were
rejected by the courts below. The District Court found that
there was no contractual duty to disclose VSC’s air monitor-
7
ing data, but that Respondents nonetheless had notified EPA
that the elevated dioxin level readings recorded by the site
perimeter monitors were caused by operational upsets at
the incinerator:
At the February 1992 meeting convened by EPA to
study the cause of elevated dioxin levels at the site, VSC
Project Manager, Bob Apa advised EPA, ADPC&E and
the independent consultants that VSC believed four of
the five elevated dioxin samples being studied by EPA
could be correlated to reported kiln puffs or flame-outs
occurring on specific dates.
Unlike the URS perimeter air monitors, there was no
requirement that VSC report the results of its onsite
monitors.
Pet. App. 30.7 The District Court also found that EPA was
well aware of the air emissions data: “Further, even during
the time period when the State of Arkansas had lead
responsibility for the incineration, EPA used VSC’s
operations logs and other site reports to understand and
interpret the URS perimeter air monitoring data.” Pet. App.
? For its own purposes, VSC maintained air monitors proximate to the
incinerator. These monitors were not contractually required. Pet. App.
30. The other monitors, located on the perimeter of the site, to track off-
site air impacts, never exceeded EPA’s applicable limits during the entire
duration of incineration.
As of June 1993, EPA was aware of the VSC on-site monitoring
data. On April 21, 1994, William Luthans, Chief of EPA’s
Arkansas/Louisiana Enforcement Section wrote to the local
newspaper explaining the differences between the VSC monitoring
data and the EPA ambient air actions levels. Mr. Luthans explained
that because the VSC monitors are located adjacent to the
incinerator, they cannot be compared to the EPA ambient air
monitoring action levels which are levels established to protect the
community beyond the fenceline who may be exposed twenty-four
hours a day, seven days a week.
Pet. App. 30.
sata
8
30. And, “[t]he evidence does not show a deliberate effort on
the part of VSC to hide its on-site air monitoring data, or
other data.” Pet. App. 31.
Finally, the courts below rejected Petitioners’ claims that if
EPA had been aware of the incinerator’s problems, the
agency would have ceased payment under the contracts:
During the performance of the Vertac on-site
incineration, EPA was aware of the allegations made by
plaintiffs in this lawsuit, including those relating to
tampering with the computer monitoring equipment.
EPA conducted numerous investigations of these
allegations. Despite plaintiffs’ allegations and its inves-
tigations, EPA continued with the contract and continued
to make payment under the contract.
Pet. App. 18.
The District Court’s and the Eighth Circuit’s findings
of fact do not accord with Petitioners’ version of the facts.
That disagreement does not create an issue for review by
this Court.
ARGUMENT
The petition does not present an issue for resolution by this
Court. The Eighth Circuit’s opinion does not conflict with
prior decisions of the Court. Notwithstanding Petitioners’
claims, none of the issues resolved by the appellate court are
the subject of a conflict among the circuits. The District
Court, as affirmed by the Court of Appeals, applied settled
FCA principles to the facts before it. Petitioners disagree
with t}-> result. Disagreement with a court’s application of
law to the facts, however, is not an appropriate basis for
granting certiorari.
9
I. THE EIGHTH CIRCUIT’S DECISION DOES
NOT CONFLICT WITH DECISIONS OF THIS
COURT AND DOES NOT PRESENT AN ISSUE
FOR RESOLUTION BY THE COURT.
Petitioners must demonstrate that the Eighth Circuit
decided “an important federal question in a way that conflicts
with relevant decisions of this Court.” Sup. CT. R. 10(c). To
do so, Petitioners incorrectly describe the Eighth Circuit’s
decision as conflicting with two decisions of this Court:
Neder v. United States, 527 U.S. | (1999) and United States
v. Wells, 519 U.S. 482 (1997). Neither Neder nor Wells
concerned the False Claims Act. Neither case suggested a re-
examination of the long-standing and widely-accepted
precedent finding materiality to be an element of False
Claims Act liability. Instead, in order to discern Congres-
sional intent with respect to the liability elements of specific
criminal statutes, Neder and Wells examined the historical
context giving rise to those statutes’ passage. By their very
nature, therefore, the outcomes of these cases are limited to
the statutes they examine, and they are not inconsistent with
the principle that materiality is a component of liability under
the False Claims Act. Even if their reach were broadened to
the False Claims Act, then application of the Neder and Wells
framework demonstrates Congress’ intent to retain materiality
as an element of the False Claims Act.
A. The Eighth Circuit’s Decision Is Not In
Conflict With Decisions Of This Court.
The Eighth Circuit begins by explaining that its previous
decisions had not explicitly considered the question of
whether a materiality element is inherent in the False Claims
Act. Pet. App. 6. Instead, its earlier opinions recognized that
a showing of materiality was necessary to prevail on a claim
under the Act, and centered discussion on the application of
the materiality standard to each of the individual cases. Pet.
App. 6-7. Accepting the conclusion that materiality is an
10
implicit part of a claim under the statute, the appellate court
concluded below that it need not decide the issue of how to
define the parameters of the materiality standard:
We need not decide the precise contours of the
materiality requirement, however, because we hold that
the plaintiffs have failed to produce evidence raising a |
genuine issue of material fact as to whether the allegedly |
withheld information was even relevant to the EPA’s |
payment decision.
Pet. App. 7.
Petitioners argue that this language somehow creates a
conflict with this Court’s decisions in Neder and Wells.
Petitioners’ argument misreads both cases.
1. Neder and Wells do not conflict with the
conclusion that materiality ts an element of False
Claims Act liability.
In 1999, this Court unanimously held that materiality is an
element of the federal mail fraud, wire fraud, and bank fraud
statutes. Neder, 527 U.S. at 20-25. To reach that conclusion,
the Court employed the framework set forth in Wells, 519
U.S. 482. To the extent a statute’s language does not
expressly enumerate materiality as an element, a court must
turn to a “necessary second step:” the context and history of
the legislation. Neder, 527 U.S. at 21. “It is a well-
established rule of construction that ‘[w]here Congress uses
terms that have accumulated settled meaning under... the
common law,,a court must infer, unless the statute otherwise
dictates, that Congress meant to incorporate the established |
meaning of these terms.’ ” /d. at 21 (citations omitted).
Neder describes the context of the 1872 passage of the
original mail fraud statute as one in which the “common law
could not have conceived of ‘fraud’ without proof of
materiality.” Jd. at 22. The Court recognized materiality in
the mail fraud statute based on (i) the common law notion
ee
11
that fraud encompasses materiality and (ii) the absence of an
expression of Congressional intent to the contrary. Jd. at 23.
Wells examines the 1948 passage of 18 U.S.C. § 1014,
which criminalized a knowing false statement to a federally
insured bank. Congress passed Section 1014 as part of
recodification of the criminal code. Congress retained in
some sections of the new code an express requirement for
materiality, did not change other sections that were silent on
the issue, and omitted materiality from passages where it had
previously been present. Wells, 519 U.S. at 492-93. Viewed
against this backdrop, the Court concluded that Congress
intended the absence of materiality from Section 1014. /d. at
494-95. The issue in Wells arose from a far different context
than that which existed at the time of the mail fraud statute,
and its contemporary, the False Claims Act. The Court’s
opinion in Wells, therefore, does not preclude the Eighth
Circuit’s decision in Costner.
2. Application of the Wells and Neder framework
to the False Claims Act does not yield the
conclusion that materiality is not ox ziement of
the Act.
Application of the framework empioyed in Wells and
Neder to the False Claims Act yields the conclusion that
materiality is properly an eleiment of liability under the
statute. Like the mail fraud statute examined in Neder, the
False Claims Act does not use the word “material.” Instead,
the four main liability provisions under the Act impose
liability on a person who:
(1) knowingly presents, or causes to be presented, to an
officer or employee of the United States Government or
a member of the Armed Forces of the United States a
false or fraudulent claim for payment or approval;
12
(2) knowingly makes, uses, or causes to be made or
used, a false record or statement to get a false or
fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a
false or fraudulent claim allowed or paid; . . .
(7) 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) (emphasis added). The absence of the
word material, however, does not end the inquiry. ' Under
Neder and Wells, the next step is an examination of the
context, and then the legislative history of the statute.
Here, the False Claim Act’s provisions contemplate a
materiality component because they establish a scheme by
which liability is only imposed when the misconduct or
misstatements bear upon the claimant’s entitlement to
payment—that is the very purpose of the statute. In other
words, a claim for payment cannot be “false” if it would have
been paid or approved notwithstanding the alleged
misconduct or misstatement. A “false statement” cannot be
used to “get” a claim paid or approved by the Government
unless it is relevant to the Government’s payment decision.
Further, Petitioners concede that “fraud” connotes materi-
ality: “Both [the Wells and Neder | decisions were very clear
in their analyses and holdings to the effect that federal
statutes that impose liability for making false statements, as
distinguished from making fraudulent statements or engaging
in fraudulent conduct, do not contain by implication any
materiality requirement.” Pet. 19. This admission is fatal to
Petitioners. There is absolutely no basis on which to read
the statute’s language to require materiality for a fraudulent
claim, but to dispense with the requirement for a false
claim. Thus, the language and structure of the False Claims
13
Act leads to the conclusion that materiality is an element
of liability.
The history and context of the statute’s passage and
subsequent amendments reinforce the conclusion. Enacted in
1863, the False Claims Act is a contemporary of the mail
fraud statute which the Court in Neder characterized as
coming at a time when “the common law could not have
conceived of ‘fraud’ without proof of materiality.” Neder,
527 U.S. at 22. The Act was passed in reaction to “[a] series
of sensational congressional investigations into the sale of
provisions and munitions to the War Department” during the
Civil War, which uncovered numerous instances in which the
Government had been billed for “[n]onexistent or worthless
goods, charged exorbitant prices for goods delivered, and
generally robbed in purchasing the necessities of war.
Congress wanted to stop this plundering of the public
treasury.” United States v. McNinch, 356 U.S. 595, 599
(1958). Thus, the Act’s very purpose was to police false
claims of entitlement to public money, and the “false”
statement causing the payment of public money—not
inconsequential false statements, mistakes, or misstatements.
See 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) (“We think the chief purpose of the [Act’s
civil penalties] was to provide restitution to the government
of money taken from it by fraud .. .”). See also S. Rep. No.
99-345, at | (1986), reprinted in 1986 U.S.C.C.A.N. 5266
(“The purpose of S. 1562, the False Claims Reform Act, is to
enhance the Government’s ability to recover losses sustained
as a result of fraud against the Government.”’).
The subsequent legislative history confirms the tie between
the materiality of the false statement or claim and the
entitlement to payment. The 1986 amendments to the False
Claims Act codified the “reverse” false claims provision. In
adding this provision (31 U.S.C. § 3729(a)(7)), Congress
14
recognized that the false statement giving rise to liability
under the statute must be material, and equated a material
representation aimed at avoiding the payment of money to the
Government to a :alse claim to receive payment from the
Government:
Section 1, paragraph (7) of the bill amends section 3729
to provide that an individual who makes a material
representation to avoid paying money owed the
Government would be equally liable under the Act as if
he had submitted a false claim to receive money.
S. Rep. No. 99-345, at 18, reprinted in 1986 U.S.C.C.A.N. at
5283.
Finally, given the number of cases that have recognizec
materiality to be a component of False Claims Acct liability,
see Section II infra, Congress could have amended the statute
to disavow the element of materiality. It has not done so, thus
evidencing its intent to retain materiality as an element of
liability under the statute. See, e.g., Equal Employment
Opportunity Comm'n v. Arabian American Oil Co., 499 U.S.
244, 258 (1991) (“Congress, should 1i wish to do so, may
similarly amend Title VII and in so doing will be able to
calibrate its provisions in a way we cannot”).
B. The Eighth Circuit’s Decision Is In Accord
With Long-Standing False Claims Act
Jurisprudence And Does Not Create New Law.
The Eighth Circuit’s decision does not affect False Claims
Act jurisprudence. As set forth in Section II below, it is
consistent with other Eighth Circuit and appellate precedent
finding materiality to be an inherent part of the statute. The
Eighth Circuit specifically reserved definition of the
materiality standard for another day, finding that regardless of
what measure of materiality was applied Petitioners had not
raised any facts that could support their case. Pet. App. 7.
This conclusion is dependent on the facts in the record in this
15
case, Pet. App. 7, making it of limited application to other
FCA cases.
Because the decision below does not create new law and
does not present a conflict with this Court’s decisions, the
petition for certiorari should be denied.
Il. THE EIGHTH CIRCUIT’S DECISION ON
MATERIALITY DOES NOT CONFLICT WITH
OTHER CIRCUITS.
Petitioners argue that the “courts of appeals are also split
and considerably uncertain . . . regarding the existence of . . .
any materiality requirement.” Pet. 27. Petitioners, however,
fail to identify the requisite disagreement among appellate
courts. The decision at issue followed Eighth Circuit
precedent when it held that “the [False Claims] Act provides
recovery from one ‘who makes a material misrepresentation
to avoid paying some obligation owed to the government.’ ”
Pet. App. 6, quoting United States v. Q Int’l Courier, Inc.,
131 F.3d 770, 772 (8th Cir. 1997) (emphasis added); see also
Rabushka ex rei. United States v. Crane Co., 122 F.3d 559,
563 (8th Cir. 1997). The Eighth Circuit holding is also
consistent with the law in other circuits. Each circuit that has
decided this issue has agreed that materiality is an essential
element under the civil False Claims Act. Thus, there is no-
split in the Circuits for this Court to resolve.
In their attempt to manufacture a circuit split, Petitioners
misconstrue the Fifth Circuit’s holding in United States v.
Southland Management Corporation, 288 F.3d 665 (5th
Cir. 2002), vacated and decided on other grounds, 326 F.3d
669 (Sth Cir. 2003) (en banc) and the Third Circuit’s holding
in United States ex rel. Cantekin v. University of Pittsburgh,
192 F.3d 402 (3d Cir. 1999). Contrary to Petitioners’
argument, Pet. 15, those two cases do not create a circuit
split, nor do they support Petitioners’ assertion that recent
16
Supreme Court decisions “likely preclude” the FCA’s
materiality requirement.
A. There Is No Conflict In The Circuits.
The appellate courts addressing the issue have held that
materiality is an indispensable element of a civil False Claims
Act case. Most circuit courts—including the First, Fourth,
Fifth, Seventh, Eighth, and Ninth Circuits and the Court of
Federal Claims—have either explicitly or implicitly required
materiality. See, e.g., United States v. Data Translation, Inc.,
984 F.2d 1256, 1267 (1st Cir. 1992) (holding that false
statement that was not material did not give rise to FCA
liability); Harrison v. Westinghouse Savannah River Co., 176
F.3d 776, 785, 788 (4th Cir. 1999) (FCA liability subject to
requirement that the false statement or claim be material);
United States ex rel. Berge v. Board of Trustees of the Univ.
of Alabama, 104 F.3d 1453, 1459 (4th Cir. 1997) (“we now
make explicit that the current civil False Claims Act imposes
a materiality requirement’’); United States ex rel. Thompson v.
Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (Sth
Cir. 1997) (“the FCA interdicts material misrepresentations
made to qualify for government privileges or services”
(internal quotation and citation omitted)); Luckey v. Baxter
Healthcare Corp., 183 F.3d 730, 732-33 (7th Cir. 1999)
(dismissing FCA claim because plaintiff did not show false
statement “was material to the United States’ buying
decision’’); United States ex rel. Lamers v. City of Green Bay,
168 F.3d 1013, 1019 (7th Cir. 1999) (agreeing with Fourth
Circuit’s FCA materiality requirement and dismissing FCA
suit because alleged misrepresentations were found to be
immaterial to government funding); United States ex rel.
Hopper v. Anton, 91 F.3d 1261, 1266-67 (9th Cir. 1996)
(finding that false compliance certifications create FCA
liability only when certification is a prerequisite to a
government benefit); United States ex rel. Butler v. Hughes
Helicopter & McDonnell Douglas, CV 89-760, 1993 WL
17
841192, at *15 & n.5 (C.D. Cal. Aug. 25, 1993) (Ninth
Circuit has implied that false statements must be material
under the FCA) (unpublished decision), aff'd, 71 F.3d 321
(9th Cir. 1995); Tyger Construction Co. v. United States, 28
Fed. Cl. 35, 55 (Fed. Cl. 1993) (“the FCA covers only those
false statements that are material”).°
Further, since the Supreme Court’s 1997 decision in Wells,
many courts have determined that materiality is an element of
a FCA violation. The case law cited above includes multiple
district court and appellate court decisio’s that have
reaffirmed that materiality is an essential element of the False
Claims Act since Wells was decided in 1997. Thus,
Petitioners’ criticism of the long standing precedent in the
circuits is unpersuasive.*
B. Southland And Cantekin Do Not Create A
“Split” In The Circuits.
Petitioners cite two cases—United States v. Southland
Management Corporation, 288 F.3d 665 (5th Cir. 2002),
vacated and decided on other grounds, 326 F.3d 669 (Sth Cir.
. Although the Courts of Appeals for the Third and Eleventh Circuits
have not had the opportunity to reach the issue, at least one district court
within each of those circuits has affirmed the materiality requirement.
See, e.g., United States v. Klein, 230 F. Supp. 426, 432 (W.D. Pa. 1964)
(“[f]raud implies a misrepresentation of a material fact”), aff'd, 356 F.2d
983 (3d Cir. 1966); United States v. Hill, 676 F. Supp. 1158, 1176 n.25
(N.D. Fla. 1987) (government must show that “but for” the false statement
it would not have issued guaranteed loan application).
* Respondents have identified a single district court decision holding
that materiality is not required under the civil FCA. Pet. 16, citing United
States ex rel. Roby v. Boeing Co., 184 F.R.D. 107, 112 (S.D. Ohio 1998)
(holding without explanation that under Wells materiality was not required
for the FCA). However, Roby has since been explicitly rejected by at
least two other courts. See United States ex rel. Wilkins v. N. Am. Constr.
Corp., 173 F. Supp. 2d 601, 622, 623-30 (S.D. Tex. 2001); United States
v. Southland Mgmt. Corp., 95 F. Supp. 2d 629, 636-37 (S.D. Miss. 2000).
18
2003) (en banc) and United States ex rel. Cantekin v.
University of Pittsburgh, 192 F.3d 402 (3d Cir. 1999)—as
evidence that there is a “split in the courts of appeals.” Pet.
24. Petitioners’ reliance on these cases is misguided for two
reasons. First, neither case actually held that materiality was
not an element. In fact, both cases declined to rule on
whether materiality is an element of the FCA because
materiality was not at issue in the case. Second, the language
cited by Petitioners is not authoritative—one decision was
vacated, Southland, 326 F.3d 669 (en banc), and the other
decision discussed the issue of materiality in dicta, Cantekin,
192 F.3d at 415-16. These cases simply do not offer this
Court a “compelling reason” for granting certiorari.
Petitioners misconstrue the language and holding in the
Fifth Circuit’s 2002 decision in Southland (“Southland I’).
The Fifth Circuit’s 2002 opinion acknowledges that “many
courts, including this court, have found that there is a fourth,
‘materiality’ element required to maintain a cause of action
under the [False Claims] Act.” Southland I, 288 F.3d at 675,
676 (“this court has indicated that the Act contains a
materiality element”). The court noted that it did not reach
the question of whether materiality was an element of the
FCA and stated that the Fifth Circuit may in the future take
the opportunity to assess whether the Supreme Court’s
decisions in Wells and Neder “might undermine our
precedents interpreting the civil FCA to contain an implicit
materiality requirement.” Jd. at 701, n.15 (emphasis added).
Despite this footnote, the Fifth Circuit upheld the district
court’s decision that the civil False Claims Act contains a
materiality requirement, noting that “not all statutory,
regulatory, or contractual violations necessarily give rise to
liability under the FCA.” /d. at 680.
More important, the panel’s 2002 decision was vacated by
an order for rehearing en banc and was affirmed on other
grounds in a 2003 en banc decision, United States v.
19
Southland Management Corp., 326 F.3d 669 (5th Cir. 2003)
(“Southland IT’). The Fifth Circuit 2003 en banc majority
decision does not reach the issue of materiality. See
Southland II, 326 F.3d at 671, 675, 677 (ruling that the
defendants were entitled to the housing assistance payments
they sought from the government; therefore their claims were
not false as a matter of law).° Petitioners’ desperate attempt
to create an issue worthy of this Court’s review by relying on
a footnote in a vacated opinion must fail.° Southland I,
therefore, does not create a split in the circuits.
Petitioners also make much ado over what they concede is
dicta in the Third Circuit’s opinion in United States ex rel.
Cantekin v. University of Pittsburgh, 192 F.3d 402 (3d Cir.
1999). Pet. 17. In Cantekin, the Third Circuit considered
whether the 1986 amendments to the FCA should be applied
retroactively to various grant applications that the defendant
researcher submitted to the National Institute of Health.
Cantekin, 192 F.3d at 404. In considering whether a claim
submitted after October 1986 was false, the Third Circuit
acknowledged that existing case law required materiality:
“[cJourts have held that claims under the False Claims Act are
subject to a judicially-imposed materiality requirement.” /d.
at 415. The Court states, in dicta, that “perhaps [the Supreme
Court’s decision in} Neder argues against a materiality
requirement.” /d. (emphasis added). However, the Third
Circuit stated it “need not decide whether there is a material-
ity requirement under the False Claims Act, because even if
—
> The concurring opinion in Southland II affirmed the role of
materiality in the FCA, and noted that the Government had conceded the
issue. Southland II, 326 F.3d at 679 (Jones, J ., concurring).
° Opinions that are vacated “are Officially gone. They have no legal
effect whatever. They are void. None of the statements made in... them
has any remaining force and cannot be considered to express the view of
this Court.” United States v. Sigma Int'l Inc., 300 F.3d 1278, 1280 (11th
Cir. 2002).
20
there is, we think it is clear that Bluestone’s failure to disclose
his industry funding would readily qualify as material.” Jd.
Such dictum has “no binding or precedential impact” and is
inadequate to grant certiorari on this question. Export Group
v. Reef Indus., Inc., 54 F.3d 1466, 1472 (9th Cir. 1995);
Richardson v. Ramirez, 418 U.S. 24, 83 n.27 (1974).
Ill. THERE IS NO CONFLICT AMONG THE
CIRCUIT COURTS OVER WHETHER
GOVERNMENT KNOWLEDGE MAY SERVE
AS A DEFENSE TO INTENT IN A FALSE
CLAIMS ACT CASE.
Apparently recognizing that the decision below provides a
second, independent ground to affirm the trial court,
Petitioners argue that this Court should grant certiorari to
review the FCA’s scienter requirement. Petitioners maintain
that “the courts of appeals are split on the relevance of
government knowledge as a defense, particularly in light of
the 1986 amendments to the [False Claims] Act which
explicitly removed the government knowledge defense.” Pet.
23. Petitioners therefore seek review in this Court as to
whether the Eighth Circuit “applied an incorrect legal
standard” when it decided that Respondents’ disclosure
“negated . . . the required intent or scienter” necessary to
support a claim under the False Claims Act. Pet. i; see also
Pet. App. 8-9.
The truth, however, is that, once again, there is no conflict
for this Court to resolve. Those circuit courts that have
considered whether the government’s knowledge of a
contractor’s actions may serve as a defense to a False Claims
Act case agree with two basic propositions. First, the 1986
amendments to the False Claims Act merely eliminated
government knowledge as an automatic bar to an action; they
did not abolish the government knowledge defense. Second,
courts agree that the government’s knowledge of the facts
21
underlying a claim is relevant to and can negate a contractor’s
intent to present a false claim. Accordingly, the uniform
practice among these courts is to evaluate the effect of
government knowledge on a case-by-case basis. The Eighth
Circuit acted in harmony with these decisions when it held
that Petitioners could not establish the necessary intent to
sustain their claims.
A. The 1986 Amendments To The False Claims
Act Did Not Abolish The Government
Knowledge Defense.
Before the 1986 amendments to the False Claims Act,
government knowledge of a contractor’s actions was an
absolute bar to a qui tam action:
Unless the Government proceeds with the action, the
court shall dismiss an action brought by the person
on discovering the action is based on evidence or
information the Government had when the action
was brought.
31 U.S.C. § 3730(b)(4) (1982). The 1986 amendments to the
False Claims Act eliminated this language, and replaced it
with language outlining the procedure under which the
government must decide to assume an action, or leave it for a
private qui tam relator. See 31 U.S.C. § 3730(b)(4) (1986).
Courts recognize, however, that the 1986 amendments did
not eliminate the government knowledge defense in all cases.
The Ninth Circuit observed: “{t]he 1986 amendments
eliminated this language, however, leaving open what would
be the effect of government knowledge of the facts
underlying a suit.” United States ex rel. Butler v. Hughes
Helicopters, Inc., 71 F.3d 321, 326 (9th Cir. 1995) (emphasis
added). The Tenth Circuit likewise agrees that while the
government knowledge defense is “no longer an automatic
defense to an FCA . . . there may still be occasions when the
government’s knowledge of or cooperation with a contrac-
22
tor’s actions is so extensive that the contractor could not as a
matter of law possess the requisite state of mind to be liable
under the FCA.” Shaw v. AAA Eng’g & Drafting, Inc., 213
F.3d 519, 534 (10th Cir. 2000). In addition, the fact that
courts continue to recognize and apply government
knowledge as a defense to intent, see Section III-B infra,
demonstrates that there is a consensus that the defense
remains intact. On the other hand, Respondents are aware of
no case in which a court has held that the 1986 amendments
to the False Claims Act eliminated the government
knowledge defense entirely.
B. The Circuit Courts Uniformly Recognize That
Government Knowledge May Serve As A
Defense To Intent In A False Claims Act Case.
Despite Petitioners’ claim, courts are not confused as to the
relevance of government knowledge as a defense to intent in
a False Claims Act case. Instead, the circuit courts uniformly
hold that government knowledge is both relevant to the
“question of intent and can “negate” intent if the government’s
knowledge is sufficiently great to preclude the possibility of
the contractor making false statements. See United States ex
rel. Becker v. Westinghouse Savannah River Go., 305 F.3d
284, 289 (4th Cir. 2002), cert. denied, 123 S. Ct. 1929 (2003)
(joining four circuit courts in holding that “the government’s
knowledge of the facts underlying an allegedly false record or
statement can negate the scienter required for an FCA
violation”); Shaw, 213 F.3d at 534 (after reviewing case law,
court “‘assum[es] some level of government knowledge would
negate the intent requirement under the FCA”); United States
ex rel. Durcholz v. FKW Inc., 189 F.3d 542, 545 (7th Cir.
1999) (in case where government knows and approves
particulars of a claim before claim for payment is presented,
“the government’s knowledge effectively negates the fraud or
falsity required by the FCA”); Butler, 71 F.3d at 327-29
(holding that cooperation and sharing of information between
23
contractor and Army negated intent required under False
Claims Act); United States ex rel. Kreindler v. United Techs.
Corp., 985 F.2d 1148, 1157 (2d Cir.) (“the fact that a
contractor has fully disclosed all information to the govern-
ment may show that the contractor has not ‘knowingly’
submitted a false claim”), cert. denied, 508 U.S. 973 (1993);
see also Southland Mgmt. Corp., 326 F.3d at 681-84 (en
banc) (concurring opinion) (concluding that result in
defendants’ favor was correct because government knew
project’s essential condition, and therefore defendants did not
“knowingly” present false claim).
There is-no conflict presented for this Court’s resolution
because these holdings are uniform. The Eighth Circuit’s
decision in this case joins that uniformity by relying on these
same authorities in affirming the trial court’s decision that
“the defendants’ openness with the EPA about their problems
and their close working relationship in solving the problems
negated the required scienter regarding these issues.”
Pet. App. 9.
Moreover, the primary case relied on by Petitioners as
evidence of a “split” among the circuit courts, see Pet. 23, is
in accord with the cases cited above. United States ex rel.
Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9th
Cir. 1991), states that “knowledge possessed by officials of
the United States . . . may show that the defendant did not
submit its claim in deliberate ignorance or reckless disregard
of the truth.” /d. at 1421. The Ninth Circuit later recognized
that “Hagood left open the possibility that . . . the extent and
nature of government knowledge may show that the
defendant did not ‘knowingly’ submit a false claim and so did
not have the intent required by the post-1986 FCA.” Butler,
71 F.3d at 327. That is precisely what the Eighth Circuit
decided when it agreed that “if the government knows and
approves of the particulars of a claim for payment before that
claim is presented, the presenter cannot be said to have
24
knowingly presented a fraudulent or false claim.” Pet. App.
8, quoting Becker, 305 F.3d at 289. Therefore, the very
authority cited by Petitioners as a basis for a conflict among
the circuit courts supports the uniform approach taken by
numerous circuit courts, including the Eighth Circuit in this
case. Given this agreement on the legal significance of
government knowledge to the question of intent, there simply
is no reason to grant certiorari on this question.
C. The Eighth Circuit’s Decision Is Consistent
With All The Other Circuit Courts That Also
Address the Government Knowledge Defense
As A Factual Inquiry Into The Information
Provided To The Government.
The agreement shared among these courts with respect to
the effect of government knowledge on intent is not limited to
legal principle. Rather, courts agree that the question is
largely one of fact, and therefore is to be treated on a case by
case basis. See Butler, 71 F.3d at 326 (recognizing that after
the 1986 amendments to the FCA, “courts have had to decide
case by case whether a FCA claim based on information in
the government’s possession can succeed”). Accordingly,
like the courts below, these courts have engaged in detailed
scrutiny of the underlying factual records in order to conclude
the level of cooperation between the government and the
defendant contractor, and the amount of information provided
to the government, was so extensive as to negate the
possibility that the contractor could lie to the government.
See Southland Mgmt. Corp., 326 F.3d at 683-84 (concurring
opinion) (concluding that contractor did not knowingly
submit false claims because evidence showed it was in
constant contact with government regarding repairs that
needed to be made to public housing facilities); Durcholz,
189 F.3d 544-45 (holding that contractor did not knowingly
submit false claims where evidence showed that contractor
was following government’s explicit directions regarding
25
manner in which claims were to be presented); Butler, 71
F.3d at 327-28 (holding that defendant could not have
knowingly submitted false claims where evidence showed
that tests at issue in complaint were the subject of discussion
between defendant and Army, and that Army knew of and
approved testing method actually used); Wang ex rel. United
States v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir. 1992)
(holding that defendant did not act with requisite intent
because evidence showed that government had extensive
knowledge of all engineering deficiencies identified by gui
‘am relator, and defendant had ongoing dialogue with
government about problems); cf Shaw, 213 F.3d at 534
(concluding that government knowledge defense was not
established because evidence showed that (i) relator, not
defendant, teld the government about certain failures, and
(i:) defendant was not forthcoming and repeatedly evaded
government questioning).
Again, there is no conflict to resolve because the Eighth
Circuit proceeded in the same manner in this case. It first
recognized the legal principal that “[a] contractor that is open
with the government regarding problems and limitations and
engages in a cooperative effort with the government to find a
solution lacks the intent required under the [False Claims]
Act.” Pet. App. 8, citing Butler, 71 F.3d at 327, and Wang,
975 F.2d at 1421. The court then went on to closely examine
the record, from which it determined that (i) air monitoring
data was available to EPA, (ii) EPA knew of ongoing
problems with kiln puffs and kiln leaks “from the beginning,”
(iii) EPA was aware that rod ports on the incinerator were
occasionally opened for maintenance, and that no evidence
existed showing that they were opened for an improper
purpose, and (iv) defendants openly discussed problems
leading to certain OSHA vioiations. Pet. App. 8-9. Based on
its close review of the record, the Eighth Circuit concluded
that “[a]lthough the record indicates that the defendants’
performance under the contract was not perfect, the extent of
26
the government's knowledge through its on-site personnel
and other sources shows that, as in Durcholz, the
‘government knew what it wanted, and it got what it paid
for”” Pet. App. 9, quoting Durcholz, 198 F.3d at 545
(emphasis added). For these reasons, the Eighth Circuit
affirmed the district court’s “finding that the defendants’
openness with the EPA about their probieims and their close
working relationship in solving the problems negated the
required scienter regarding these issues.” Pet. App. 9. The
Eighth Circuit’s analysis is in complete harmony with the
legal principles and procedures adopted by the other circuit
courts that have considered and applied the government
knowledge defense to the question of intent. Given the
Eighth Circuit’s uniform approach to this issue, there is no
conflict over which this Court should grant certiorari.
Il. THE EIGHTH CIRCUIT’S DECISION ON RULE
9(B) DOES NOT CREATE AN ISSUE WORTHY
OF REVIEW BY THIS COURT.
There can be no dispute that Rule 9(b) of the Federal Rules
of Civil Procedure is applicable to FCA litigation, and is
applicable to qui tam relatcrs. Petitioners nonetheless urge
review because in their view the Eighth Circuit imposed a
particularity requirement at odds with the Fourth Circuit’s
opinion in Harrison v. Westinghouse Savannah River
Company, 176 F.3d 776 (4th Cir. 1999). Pet. 26. In
Harrison, the Fourth Circuit stated that the court must be
“satisfied (1) that the defendant has been made aware of the
particular circumstances for which he will have to prepare a
defense at trial and (2) that plaintiff has substantial pre-
discovery evidence of those facts.” Harrison, 176 F.3d at
784. The Fourth Circuit actually dismissed Counts 4, 7 and 8
of the Complaint in Harrison because the Plaintiff failed
adequately to plead the underlying fraud. /d. at 789.
27
Thus, contrary to Petitioners’ argument, the Fourth and
Eighth Circuits are in agreement that specificity as to the
underlying fraudulent conduct is required when that
information is necessary to prepare a defense. The remaining
Courts of Appeal that have addressed this issue also are in
agreement. See United States ex rel. Lee v. SmithKline
Beecham, Inc., 245 F.3d 1048, 1051-52 (9th Cir. 2001)
(complaint that alleged fraud due to tampering with tests was
insufficient because Plaintiffs failed to specify the types of
tests implicated, the identity of the employees who performed -
the tests, and the dates, times and places where the tests were
conducteu); United States ex rel. Totten v. Bombardier C. orp.,
286 F.3d 542, 552 (D.C. Cir. 2002) (detailed description of
the specific falsehoods that are the basis of the claim are
required); Gold v. Morrison-Knudsen Co., 68 F.3d 1475,
1476-77 (2d Cir. 1995) (specific statements or conduct giving
rise to the fraud claim are required); United States ex rel
Willard v. Humana Health Plan of Texas, Inc., No. 02-40285,
2003 WL 21467963, at *8 (Sth Cir. June 26, 2003)
(circumstances constituting fraud or mistake required); Bly-
Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)
(notice of the particular misconduct which is alleged is
required); United States ex rel. Clausen v. Laboratory Corp.
of America, Inc., 290 F.3d 1301, 1308-09 (11th Cir. 2002)
(making clear that Rule 9(b) does apply to actions under the
False Claims Act).
Notwithstanding the consistent authority to the contrary,
Petitioners urge review by this Court because they believe
that the District Court and the Eighth Circuit improperly
required them to specify the details of the underlying
fraudulent conduct. Significantly, the courts below imposed
the particularity requirement not on the admittedly inadequate
allegations in the complaint, but rather on the disclosures in
discovery. The trial court required disclosure of the particular
details of the claim after five years of litigation and only four
months prior to trial. The Eighth Circuit explained the
28
rationale for its requirement: “[w]ithout information as to
who tampered with the monitors and how and when the
tampering occurred, the defendants would be largely unable
to respond with contemporaneous witnesses and documents
and expert witnesses to testify as to whether the monitoring
data is consistent with the tampering of the sort alleged to
have occurred.” Pet. App. 11. This is textbook law.
As to the underlying fraudulent conduct that Petitioners
subsequently identified in discovery (i.e., the two dates of
alleged tampering that were disclosed and litigated), the
District Court found that “Daniel’s different versions of the
tampering were contradicted by all of the other witnesses and
by the contemporaneous site records and historian data” and
the District Court “had no hesitancy in completely
discrediting [Daniel’s] testimony.” Pet. App. 13. Such a
specific finding by the trial court does not provide a basis for
a petition for certiorari.
29
_ CONCLUSION
For the reasons set forth above, Respondents respectfully
request the Court to deny the petition for certiorari. -
Respectfully submitted,
JOHN C. MARTIN
MARY BETH Bosco
PATTON BOGGS LLP
2550 M Street, N.W.
Washington, D.C. 20037
(202) 457-6000
STEVE SHULTS
SHULTS LAW FIRM, LLP
200 W. Capitol Avenue, Suite 1600
Little Rock, AR 72201
(501) 372-2301
CHARLES R. NESTRUD
CHISENHALL, NESTRUD & JULIAN, P.A.
400 W. Capitol Avenue, Suite 2840
Regions Bank Center
Little Rock, AR 72201
(501) 372-5800
August 11, 2003
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.