Petition for Writ of Certiorari — United States v. North American American Bus Industries, Inc. (No. 08-1249)
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Supreme Court, U.S.
\ FILED
No. 6-8 1.249 APR 7 - 2009
OFFICE OF THE CLERK
In The
Supreme Court of the Gnited States
UNITED STATES OF AMERICA,
ex rel. THORNTON G. SANDERS,
Petitioner,
V.
NORTH AMERICAN BUS INDUSTRIES, INC-.;
DELOITTE & TOUCHE USA, LLP;
NORTH AMERICAN BUS INDUSTRIES KFT.,
Respondents.
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Fourth Circuit
PETITION FOR WRIT OF CERTIORARI
Of Counsel: THE CULLEN LAW FIRM, PLLC
JAMES A. MOODY JOSEPH A. BLACK
1101 30th Street, NW Counsel of Record
Suite 300 1101 30th Street, NW
Washington, D.C. 20007 Suite 300
(202) 298-4766 Washington, D.C. 20007
(202) 944-8600
COCKLE LAW BRIEF PRINTING CO (800) 225-6964
OR CALL COLLECT (402) 342-2831
QUESTIONS PRESENTED
Respondent NABI performs final assembly of
transit busses using bodies produced in Hungary.
NABI falsely claimed the bus shells had enough
additional components to qualify for “duty free” entry
as finished buses while at the same time qualifying
for “Buy America” subsidies by falsely claiming to the
Department of Transportation that 60 percent of the
component value was added in the United States. The
court of appeals imposed a materiality requirement
not found in the False Claims Act and imposed an
impossible burden requiring a relator to prove what
Customs would have done in the absence of the false
claims. The court applied the short six-year statute of
limitations even though the government had no
knowledge of the false claims prior to relator’s com-
plaint.
1. The statute of limitations for actions under the
False Claims Act (“FCA”) is the later of (1) six years
after the false claim, or (2) ten years after the FCA
violation when an action is filed within three years
after the government learned of the underlying false
claims. Was Petitioner Sanders permitted to rely on
the ten-year limitations period when the government
had no knowledge of the facts and chose to allow
Sanders to litigate on its behalf?
QUESTIONS PRESENTED - Continued
2. This case invclves the Customs classification of
imported bus shells where Customs stated that the
classification was governed by the “substantial
amount of equipment and components” represented
to be on the bus shells by the Respondents. The
Respondents lied about the equipment and compo-
nents contained on the bus shells to obtain a more
favorable classification and to avoid paying Customs
duty. Were such lies “material” to Customs’ classifica-
tion decision?
3. Whether, under this Court’s analysis in United
States v. Wells, 519 U.S. 481 (1997), and Neder v.
United States, 527 U.S. 1 (1999), the FCA contains a
materiality element.
4. Whether this Court’s decision in Graham County
Soil & Water Conservation Dist. v. U.S. ex rel. Wilson,
545 U.S. 409 (2005), regarding the appropriate sta-
tute of limitations for retaliatory discharge claims
filed under 31 U.S.C. § 3730(h) of the FCA should be
overruled.
TABLE OF CONTENTS
QUESTIONS PRESENTED
TABLE OF CONTENTS
OPINIONS BELOW
JURISDICTION
STATUTORY PROVISIONS INVOLVED
STATEMENT
A. Background
. TRRRRR CII ois cic secekscsesestanceascnsinss
C.
D. Facts Related to Materiality
REASONS FOR GRANTING THE PETITION ...
A. The Court Should Grant the Petition to
Resolve the Conflicting Positions of the
Lower Courts Regarding the Statute of
Limitations Applied to FCA Actions When
the Government Does Not Intervene
The Court Should Grant the Petition to
Resolve the Conflicting Positions of the
Lower Courts Regarding the Appropriate
Standard for Materiality, if any, to be Ap-
WOPOOEE 10S PER COIN 5 oes scsceiccstsccssceactnecsnns 18
1V
TABLE OF CONTENTS -— Continued
Page
C. The Court Should Exercise Its Supervisory
Powers to Correct the Lower Courts’ Im-
proper Application of the Materiality Ele-
ment Based on the “Natural Tendency”
g UN ENED e Rg e er RO ON PEED MERE ea ee eA PN Meee 23
CEN bess de 5 crsakcckcdunecasee kacspiisabcoecceswbonseas 29
APPENDIX
United States ex rel. Sanders v. North Amert-
can Bus Ind., Inc., 546 F.3d 288 (4th Cir.
United Siaies ex rel. Sanders v. North Ameri-
can Bus Ind., Inc., No. 07-1773 (Oct. 30,
2008) (Order denying motion to take notice of
iii declan 2pnidatonm dendiatmavietadealons App. 28
United States ex rel. Sanders v. North Ameri-
can Bus Ind., Inc., Civ. No. JFM-02-3084,
slip op. (D. Md. June 25, 2007)............0.0. App. 30
United States ex rel. Sanders v. North Ameri-
can Bus Ind., Inc., 2007 WIL 80922 (D. Md.
STs ST iviictslecdne an aceaoe App. 34
United States ex rel. Sanders v. North Ameri-
can Bus Ind., Inc., Civ. No. JFM-02-3084,
slip op. (D. Md. Dec. 19, 2005)....................... App. 42
United States ex rel. Sanders v. North Amert-
can Bus Ind., Inc., Civ. No. JFM-02-3084,
Slip Op. (D. DEG. Mar. 7, BOOS) ..........sccssecseesiees App. 46
TABLE OF CONTENTS — Continued
United States ex rel. Sanders v. North Ameri-
can Bus Ind., Inc., No. 07-1773 (Jan. 7,
2009) (Order denying petition for hearing en
31 U.S.C. §§ 3729-32 (excerpts)
In the matter of the Search of the Premises
Known and Described as: North American
Bus Industries (NABI), 106 National Drive,
Anniston, Alabama 36207, No. MAG 08 133
(July 31, 2008) (Application and Affidavit for
Search Warrant)
Page
TABLE OF AUTHORITIES
Page
CASES
Costner v. URS Consultants, Inc., 153 F.3d 667
I a dh pcan sean 19
Dobbs v. Anthem Blue Cross & Blue Shield, 475
eB FR OR) 5 yp 26
Graham County Soil & Water Conservation
Dist. v. U.S. ex rel. Wilson, 545 U.S. 409
as ce arse cess aceniiuabeees 26
Neder v. United States, 527 U.S. 1 (1999) .....19, 20, 21
Philip Medical Sys. International, B.V. v.
Bruetman, 982 F.2d 211 (7th Cir. 1992)................. 26
Rabushka ex rel. United States v. Crane Co.,
Re te Ee Gy BED vanininsicdeccisccsscsccscscesccsss 19
Sikkenga v. Regence Bluecross Blueshield of
Utah, 472 F.3d 702 (10th Cir. 2006)........0..00c... 15
United States ex rel. A+ Homecare, Inc. v.
Medshares Mgmt. Group, Inc., 400 F.3d 428
TN ai ins casedicsavadugussionsacebanahnsensses 18, 19
United States ex rel. Bahrani v. Conagra, Inc.,
465 F.3d 1189 (10th Cir. 2006)......................... inaeoie 18
United States ex rel. Berge v. Trustees of Univ.
of Alabama, 104 F.3d 1453 (4th Cir. 1997) ............ 18
United States ex rel. Bidani v. Lewis, 1999 WL
EE oc ekicugncscsichsceidecsecebnas scsesines 14
United States ex rel. Colunga v. Hercules, Inc.,
1998 WL 310481 (D. Ut. 1998)....................008 Sabie 1
A |
TABLE OF AUTHORITIES — Continued
United States ex rel. Downy v. Corning, Inc.,
118 F. Supp.2d 1160 (D.N.M. 2000)
United States ex rel. El Amin uv. George
Washington Univ., 26 F. Supp. 2d 162 (D.D.C.
United States ex rel. Finney v. Nextwave
Telecom, Inc., 337 B.R. 479 (S.D.N.Y. 2006)
United States ex rel. Fisher v. Network
Software Assocs., Inc., 180 F. Supp. 2d 192
(D.D.C. 2002)
United States ex rel. Gonzales v. Fresenius
Medical Care North America, 2008 WL
4277150 (W.D. Tx. 2008)
United States ex rel. Harrison v. Westinghouse
Savannah River Co., 352 F.3d 908 (4th Cir.
United States ex rel. Hyatt v. Northrop Corp.,
91 F.3d 1211 (9th Cir. 1996)
United States ex rel. Kreindler & Kreindler uv.
United Technologies Corp., 777 F.Supp. 195
(N.D.N.Y. 1991)
United States ex rel. Lewis v. Walker, 2007 WL
ee PO ED, MM. UNO F occscidbiuda.cckcaucindvasccednnciseccees 15
United States ex rel. Lowman v. Hilton Head
Health Care Sys., L.P., 487 F. Supp. 2d 682
(D.S.C. 2007)
Vili
TABLE OF AUTHORITIES — Continued
Page
United States ex rel. Pogue v. Diabetes Treat- .
ment Centers of America, 474 F. Supp. 2d 75
Csi da diniid online davatnercsdWexeustaeicebinesdiiasetes 13
United States ex rel. Saaf v. Lehman Bros., 123
ae WT CRD CE, RE PF vcnvcssivecesacenivsccsiiscntarivacesesas 14
United States ex rel. Salmeron v. Enterprise
Recovery Sys., 464 F. Supp. 2d 766 (N.D. Ill.
| MRE eth IPSS SR ire ee PraPeen R TR END Pear eI 15, 17
United States ex rel. Sikkenga v. Regence
Bluecross Blueshield of Utah, 472 F.3d 702
Se IE ini. ohcacreuscsecissineibuiswecsdibanneivusihioras 12
United States ex rel. Thistlethwaite v. Dowty
Woodville Polymer, Ltd., 6 F. Supp. 2d 263
ics cictiteciaedipcncnsandusibanicisandakasedssivenes 12
United States ex rel. Vosika v. Starkey Labs.,
Inc., No. Civ. 01-709, 2004 WL 2065127 (D.
PN Ns. We I aes sbisuh suds tac casa stnchiovés Joiveaee 12
United States ex rel. Wilson v. Graham County
Soil & Water Conservation Dist., 2002 WL
eS 0 OR Fa, sven kvcckeccisccedececsccdseocscsscs 14
United States ex rel. Wilson v. Graham County
Soil & Water Conservation Dist., 367 F.3d
I ogi vn nckce dance ccevencinccvaradecavses 5, 14
United States v. Bourseau, 531 F.3d 1159 (9th
chy Meee AEN eg CE sed Te 18
United States v. Rogan, 517 F.3d 449 (7th Cir.
a arts acne naan uieeavead 18
United States v. Wells, 519 U.S. 481 (1997)......... 19, 20
1X
TABLE OF AUTHORITIES — Continued
STATUTES
31 U.S.C. § 3729(b)
31 U.S.C. § 3730(b)(5)
31 U.S.C. § 3730(e)(4)(A)
31 U.S.C. § 3730(h)
31 U.S.C. § 3731(b)
49 U.S.C. § 5323(j)
49 U.S.C. § 53823G)(2C)(i)
REGULATIONS
49 C.F.R. Part 661
OTHER AUTHORITIES
James B. Helmer, Jr., False Claims Act:
Whistler Blower Litigation, § 2-4(d) (5th ed.
S.Rep. No. 345, 99th Cong., 2d Sess., 30 (July
28, 1986), reprinted in 986 U.S.C.C.A.N.
5266, 5295
S. 2041, False Claims Act Corrections Act of
2007, 155 Cong. Rec. S$11506-509 (Sept. 12,
U.S. Customs Priv. Ltr. Rul., HQ962065 (Nov.
1
OPINIONS BELOW
The opinion of the Fourth Circuit Court of Ap-
peals (App. 1) is reported at 546 F.3d 288 (4th Cir.
2008). One decision of the district court is unreported
but available at 2007 WL 80922. App. 34. Three other
decisions of the district court are unreported and not
available electronically but are appended at App. 30,
App. 42 and App. 46.
JURISDICTION
The order of the Court of Appeals for the Fourth
Circuit denying petitioner’s motion for rehearing en
banc was entered on January 7, 2007. App. 49. The
jurisdiction of this Court is invoked under 28 U.S.C.
§ 1254.
STATUTORY PROVISIONS INVOLVED
The relevant provisions of the False Claims Act,
31 U.S.C. §§ 3729-3731, are set out in the appendix to
this petition at App. 51.
2
STATEMENT
The qui tam provisions of the False Claims Act
(“FCA”), 31 U.S.C. §§ 3729-3733 permit private
parties to bring suit in federal court to recover treble
damages and penalties on behalf of the United States.
This Petition presents two questions of considerable
importance regarding the application of the FCA.
First: is the statute of limitations in “non-intervened”
cases six or ten years? Second: does the FCA silently
impose a materiality requirement, and if so, what is
the proper standard? On both of these issues the
lower courts have issued diverse opinions. Legislation
has been introduced in Congress which would resolve
both of these issues by: (1) creating a uniform statute
of limitations for all causes of action under the FCA;
and (2) explicitly stating that the FCA is a statutory
cause of action and that no additional elements, such
as materiality, are required to prove liability. With
regard to the appropriate statute of limitations for
retaliatory discharge claims filed under § 3730(h), the
Court should review its decision in Graham County
Soil & Water Conservation Dist. v. U.S. ex rel. Wilson,
545 U.S. 409 (2005), because of the inequitable and
inconsistent treatment accorded whistleblowers
resulting from the application of this decision.
A. Background
The Respondents, North American Bus Industries,
Inc. of Anniston, Alabama, and its Hungarian parent,
North American Bus Industries, Kft. (collectively
3
“NABI”) are in the business of producing transit
buses for American transit authorities. See generally
App. 3-4. NABI engages in a two-step manufacturing
process. It first produces bus shells or bodies in its
plant in Hungary and then, using American compo-
nents, completes the assembly of the buses in the
United States. Jd. In doing so, it certifies that the
buses qualify for Buy America grants or subsidies
under 49 U.S.C. § 5323(j) and 49 C.F.R. Part 661,
which require that “the cost of components and
subcomponents produced in the United States is more
than 60 percent of the cost of all components... .” 49
U.S.C. § 53239 )(2C)G). Id.
B. NABIP’s False Claims
In the process of importing its bus bodies from
Hungary for use in the production of finished buses,
NABI made three different types of false claims
actionable under the FCA. First, NABI Hungary
undervalued the bus bodies by falsely claiming that it
provided valuable engineering and_ technology
(“E&T”) services to NABI USA. It billed NABI USA
for these non-existing services, thereby reducing the
cost of the foreign content of the finished bus and
allowing NABI’s buses to qualify for Buy America
subsidies. Since the actual domestic content of the
finished buses was less than 60 percent for many of
the buses, NABI was not qualified to receive any part
of the subsidy. Second, since the payments were not
declared to the U.S. Customs Service, now USS.
Customs and Border Protection, (“Customs”), NABI
4
avoided the payment of Customs duties on the E&T
payments.
Finally, in a successful effort to eliminate the
payment of all Customs duties on imported bus
shells, NABI, with the assistance of Respondent
Deloitte & Touche, LLP (“Deloitte”), falsely claimed
that they were sufficiently complete to be classified as
duty-free finished buses. NABI made the opposite
representation to the Federal Transit Administration
to obtain “Buy America” subsidies, i.e. that 60 percent
of the value of the components of finished busses was
added in the United States.
Petitioner Sanders was the Chief Financial
Officer and President of NABI USA from 1993 until
April 1997. App. 6. His employment was terminated
by his Hungarian based superiors after he raised
questions about the legality of the undervaluation of
the imported bus shells.
C. Facts Related to the Statute of Limitations
Petitioner Sanders filed his original complaint on
September 17, 2002. That complaint contained only
one count alleging false claims made to obtain Buy
America subsidies. The complaint also cor.tained
allegations that Mr. Sanders was wrongfully dis-
charged, but did not contain a formal count regarding
that discharge. After the Government declined to
intervene in the original complaint Mr. Sanders filed
an amended complaint on June 23, 2004, adding two
Customs’ counts and a retaliatory discharge count
filed under 31 U.S.C. § 3730(h). On March 7, 2005 the
district court denied NABI’s motion to dismiss Sand-
ers’ Customs’ counts and his wrongful discharge claim
on statute of limitations grounds. App. 46. The court
found that false claims made to Customs were action-
able under the FCA and that Sanders’ discharge
claim related back to his original complaint, and that
they were thus within the six-year statute of limita-
tions for such claims. Id. See United States ex rel.
Wilson v. Graham County Soil & Water Conservation
Dist., 367 F.3d 245 (4th Cir. 2004). Subsequently,
after conducting initial discovery and learning of
Respondent Deloitte’s role in the Customs classifica-
tion fraud, Sanders amended his complaint to add
Deloitte as a defendant on June 30, 2005.
On December 19, 2005, the district court granted
Deloitte’s motion to dismiss the complaint against it
on statute of limitations grounds. App. 42. The dis-
trict court found that in a non-intervened case Sand-
ers was entitled to only a six-year statute of
limitations instead of the ten-year period if the gov-
ernment had intervened in his action.
The objective of NABI’s Buy America scheme was
to fraudulently obtain substantial subsidies for
finished buses by understating the value-added in
Hungary in order to comply with Buy America re-
quirements. The district court initially found that
Sanders could not show that the government sus-
tained actual damages under the test established by
the Fourth Circunt decision in United States ex rel.
Harrison v. Westinghouse Savannah River Co., 352
6
F.3d 908 (4th Cir. 2003). App. 46. The district court
entered judgment on the issue of damages, but held
that NABI could still be subject to penalties under
the FCA. The false claims related to the Buy America
fraud all occurred before 1996 and more than six
years before Sanders filed his original complaint.
Subsequently, the court dismissed all of these ailega-
tions on statute of limitations grounds. App. 30. The
court of appeals affirmed the district court solely on
the basis of the statute of limitations decision. App.
18. Thus, the issue of damages was not addressed by
the court of appeals.
As noted, Sanders’ First Amended Complaint
contained a retaliatory discharge claim filed under
§ 3730(h) of the FCA. That allegation was ultimately
dismissed by the district court (App. 26 n.6) following
the Court’s decision in Graham County Soil & Water
Conservation Dist. v. U.S. ex rel. Wilson, 545 U.S. 409
(2005), which reversed a prior decision of the Fourth
Circuit Court of Appeals. On September 12, 2007,
technical amendments were introduced in the Senate
that would overrule Graham County. These amend-
ments were reintroduced in the Senate on February
24, 2009. In the interest of preserving his rights,
Sanders appealed the dismissal of his discharge claim
in the event that the proposed amendments become
controlling law.
7
D. Facts Related to Materiality
For many years before 1998, NABI imported bus
shells from Hungary into the United States under
subheading 8707.90.50 of the Harmonized Tariff
Schedule of the United States (“HTSUS”), dutiable at
4 percent of their declared value. This provision
provides for “Bodies (including cabs), for motor ve-
hicles of headings 8701 to 8705: Other:, Other.” On
June 29, 1998, Deloitte & Touche filed a protest on
behalf of NABI with Customs challenging the classifi-
cation of the bus shells as “bodies.” The protest
claimed refunds cf customs duties on past shipments
of bus shells. NABI asserted that the bus shells
should be classified under subheading 8702.10.30,
which provides for “Motor vehicles [with diesel en-
gine] designed for the transport of [16] or more per-
sons including the driver.” The rate of duty under this
provision was 2.4 percent during 1997 and was sub-
sequently reduced to 2 percent. More importantly,
NABI imports from Hungary classified under this
provision were eligible for Generalized System of
Preferences (“GSP”) treatment, which made them
duty free. NABI falsely claimed that a number of
components were imported with the bus shells —
when they were not — to obtain the duty-free classifi-
cation. The evidence proves beyond any genuine
dispute that many of the key components claimed to
be imported with the bus shell — components that
could theoretically result in the classification of the
imports as finished buses — were not complete or not
even imported with the shell at all.
8
Customs granted the protest on November 20,
1988, finding explicitly:
The bus shells when imported contain a sub-
stantial amount of equipment and number of
components necessary for a completed transit
bus. ... Accordingly, the bus shells are classi-
fied as motor vehicles for the transport of 16
or more persons, including driver; since, in
its unfinished state, the article has the es-
sential character of such a motor vehicle.
(emphasis added)
U.S. Customs Priv. Ltr. Rul., HQ962065 (Nov. 20, 1998)
Thus, when Customs granted NABI’s claim for a
refund of duties it stated that its decision was based
on the “substantial amount of equipment and number
of components” claimed in the protest. The Govern-
ment declined to intervene following the filing of
Sanders’ First Amended Complaint, which added his
Customs related counts and his retaliatory discharge
claim. However, after reviewing the papers and
supporting exhibits filed in connection with the
parties’ cross motions for summary judgment, the
Government sought additional time from the district
court to consider those documents and reevaluate its
intervention decision before the court rendered its
rulings on summary judgment. The court denied that
request in its summary judgment order in which it
found that NABI’s false claims were not material to
the Customs’ classification decision. App. 37-40.
Independently, without informing Sanders at the
time, the Government began an investigation of
NABI’s continuing bus shell imports, and as a result,
9
reclassified the bus shells from finished buses to bus
bodies. Sanders became aware of this investigation
and reclassification while the appeal was pending.
Sanders requested the Fourth Circuit to take judicial
notice of the Government’s affidavit used to secure a
search warrant of NABI’s facilities, which detailed
the Government’s position.’ App. 56. In affirming the
district court’s materiality decision, the court of
appeals denied this request. App. 27. The affidavit
filed in support of the search warrant stated that
NABI’s misrepresentations regarding the components
included in the bus shell were “material” to Customs’
classification decision.
' Based on the time line contained in the Gevernment
affidavit, it is quite clear that NABI was aware that Customs
had in fact changed the classification of its bus shells prior to
the time that the district court entered judgment and before it
argued to the court of appeals that false claims could not affect
the classification decision
10
REASONS FOR GRANTING THE PETITION
A. The Court Should Grant the Petition to
Resolve the Conflicting Positions of the
Lower Courts Regarding the Statute of
Limitations Applied to FCA Actions When
the Government Does Not Intervene.
The court of appeals erroneously affirmed the
district court’s decision that NABI’s false claims are
only actionable for six years prior to Sanders’ com-
plaint when the government does not intervene.
Courts in the D.C., Second, Fifth, Seventh, and
Eleventh Circuits apply a uniform ten-year statute of
limitations in non-intervened cases where there is no
evidence of government knowledge of the fraud.
The statute of limitations provision of the FCA,
31 U.S.C. § 3731(b), contains two limitations periods
which must be read together to determine the appro-
priate period to be applied to any action. The limita-
tion period is either a minimum six-year period or a
longer ten-year period, provided that the government
has not been aware of the fraud for more than three
years, “whichever occurs last.” It is the government’s
knowledge of the false claims that stops the clock on
an action filed by either the government or relator at
the greater of six years or three years from the date of
knowledge by an official of the United States. A
whistleblower has up to ten years (depending on the
knowledge of a responsible governmental official)
but has an incentive to file as early as possible or
risk losing jurisdiction (by prior public disclosure or
pre-emptive filing by the government or another
11
whistleblower). Since these provisions must be read
together, and since there is no indication that the
government was aware of NABI’s false claims, Mr.
Sanders should be entitled to the longer ten-year
period.
The lower courts are in a state of chaos as to
which of three different interpretations of the 31
U.S.C. § 3731(b) applies to relator-filed FCA actions.
The current statute states:
(b) A civil action under section 3730 may
not be brought —
(1) more than 6 years after the date on
which the violation of section 3729 is com-
mitted, or
(2) more than 3 years after the date when
facts material to the right of action are
known or reasonably should have been
known by the official of the United States
charged with responsibility to act in the cir-
cumstances, but in no event more than 10
years after the date on which the violation is
committed, whichever occurs last.
31 U.S.C. § 3731(b).
The decision in this case is typical of a number of
decisions that base the limitation period on question-
able policy considerations rather than the literal text
of the statute and a re-writing of the provision to
12
implement those considerations.” The court begins by
asserting that it would be “problematic” to read the
statute any other way except limiting relator actions
to six years. App. 11. Focusing on the language of
§ 3731(b)(2), the court notes that it refers only to the
government and states that it would “produce the
bizarre scenario in which the limitations period in a
relator’s action depends on the knowledge of a non-
party to the action.” App. 11-12. The court therefore
rewrote § 3731(b)(2) by adding “in actions filed by the
government.” While the court may describe this as a
“bizarre” result, it would also be a very rare result.
The reason why relator-filed FCA cases are called
“whistleblower” actions, is that the government is
unaware of the fraud until a relator blows the whis-
tle. The court’s hypothetical concern is not such a
common event that it requires limiting the words of
the statute. Of note, none of the cases discussing the
statute of limitations describe a set of facts in which a
responsible government official with knowledge of the
fraud would have limited the relator’s action to six
* See United States ex rel. Sikkenga v. Regence Bluecross
Blueshield of Utah, 472 F.3d 702 (10th Cir. 2006); United States
ex rel. Fisher v. Network Software Assocs., Inc., 180 F. Supp. 2d
192, 194 (D.D.C. 2002); United States ex rel. El Amin v. George
Washington Univ., 26 F. Supp. 2d 162, 172-73 (D.D.C. 1998);
United States ex rel. Finney v. Nextwave Telecom, Inc., 337 B.R.
479, 486 (S.D.N.Y. 2006): United States ex rel. Thistlethwaite
v. Dowty Woodville Polymer, Ltd., 6 F.Supp. 2d 263, 265
(S.D.N.Y. 1998); United States ex rel. Vosika v. Starkey Labs.,
Inc., No. Civ. 01-709, 2004 WL 2065127, at *2-*3 (D. Minn. Sept.
8, 2004).
13
years. If this possible result were indeed “problemati-
cal,” one would expect it to have arisen in the almost
25 years since the current statute has been in effect.
The court may not rewrite the FCA to implement its
own policy considerations, at least without a finding
not made here that the plain reading is absurd. It
seems entirely rational for Congress to extend the
limitation period for both relator- and government-
filed actions when the government lacks knowledge to
act. After all, the essence of wrongdoing actionable
under the FCA is concealment.
The court continued with other policy reasons for
ignoring the words of the statute. Included was the
supposed concern that a relator would wait ten years
until his monetary claims built up thereby increasing
his potential recovery at the expense of taxpayers.
Again, these concerns are unrealistic, and again the
court can point to no case where this has occurred.
The FCA contains potent incentives for the relator to
file as quickly as possible. No relator would delay to
let his claims build up, risking another party or the
government filing a case before him or that a public
disclosure of the fraud might bar a subsequent relator
action. Either event would cut off all of his rights in
his claim, and he would be left with nothing. 31
U.S.C. §§ 3730(b)(5), 3730(e)(4)(A). Because of this
danger, once a relator with strong evidence of fraud
connects with an experienced FCA attorney, there is a
rush to the courthouse. See United States ex rel.
Pogue v. Diabetes Treatment Centers of America, 474
F.Supp. 2d 75 (D.D.C. 2007) (“This hypothetical
14
scenario is too implausible to provide a justification
for tweaking the straightforward words of a sta-
tute.”).
The leading case for the second interpretation is
United States ex rel. Hyatt v. Northrop Corp., 91 F.3d
1211 (9th Cir. 1996) in which the Ninth Circuit held
that the tolling provision of section 3731(b)(2) does
apply to relators, but that the timing of the relator’s
knowledge controls its application to his qui tam
action.” In Hyatt, the court based its decision on the
rationale that the reference to an “official of the
United States” in (b)(2) must by implication include
relators, because in other parts of the statute and the
legislative history, that conclusion is unmistakable.
Hyatt, 91 F.3d at 1214-15. Under this interpretation,
the relator would be covered by (b)(2), but would be
subject to the three-year tolling provision. This
interpretation is not supported by the text (which
expressly starts the clock on the “date when facts
material to the right of action are known or reasona-
bly should have been known by the official of the
United States charged with responsibility to act in the
* See also United States ex rel. Lowman v. Hilton Head
Health Care Sys., L.P., 487 F. Supp. 2d 682 (D.S.C. 2007); United
States ex rel. Saaf v. Lehman Bros., 123 F.3d 1307 (9th Cir
1997): United States ex rel. Downy v. Corning, Inc., 118
F. Supp. 2d 1160 (D.N.M. 2000); United States ex rel. Bidani v
Lewis, 1999 WL 163053 (N.D. Ill. 1999) and United States ex rel.
Wilson v. Graham County Soil & Water Conservation Dist., 2002
WL 31455718 (W.D. N.C. 2002) (rev’d and vacated on other
grounds 367 F.3d 245 (4th Cir. 2004))
15
circumstances”), or the legislative history. While the
words “government” and “United States” may have
been used loosely in other parts of the statute or
legislative history, here they use the very specific
“official within the Department of Justice with the
authority to act in the circumstances” (legislative
history)’ and “official of the United States with re-
sponsibility to act” (statute) when describing the
relevant person for statute of limitations purposes.
See Pogue, 474 F. Supp. 2d at 87.
The Pogue decision represents the third line of
cases interpreting § 3731(b) and is the most faithful
to the words of the statute and contains the most
careful analysis of the statute and its legislative
history. The same position was adopted by the courts
in United States ex rel. Lewis v. Walker, 2007 WL
2713018 (M.D. Ga. 2007) at *5-*6; United States ex
rel. Gonzales v. Fresenius Medical Care North Ameri-
ca, 2008 WL 4277150 (W.D. Tx. 2008) at *7-*8; United
States ex rel. Salmeron v. Enterprise Recovery Sys.,
464 F. Supp. 2d 766 (N.D. Ill. 2006); United States ex
rel. Kreindler & Kreindler v. United Technologies
Corp., 777 F.Supp. 195 (N.D.N.Y. 1991); and United
States ex rel. Colunga v. Hercules, Inc., 1998 WL
310481 (D. Ut. 1998), overruled by Sikkenga v. Regence
Bluecross Blueshield of Utah, 472 F.3d 702 (10th Cir.
2006). These courts held that the ten-year limitations
period of § 3731(b)(2) does apply to relators, but that
* S.Rep. No. 345, 99th Cong., 2d Sess., 30 (July 28, 1986),
reprinted in 1986 U.S.C.C.A.N. 5266, 5295
16
its tolling provision does not implicate relator know-
ledge. Instead, the relevant knowledge for purposes of
calculating time is the date when an official of the
United States learned of the fraud. Under this inter-
pretation, the statute of limitations would be the
same for the government as the relator, and if an
official of the United States never learned of the
fraud, the relator would have ten years to bring his
action.
As noted in Pogue, the Court should begin any
analysis with the language of the statute itself. As
Pogue explains, the prefatory language of § 3731(b),
“a civil action under section 3730” includes both the
government and relators. Pogue, 474 F. Supp. 2d at
84. In order to have different limitation periods for
actions brought by relators and government, differen-
tiating language must be found in the subordinate
clauses. Jd. An examination of subsection (b)(2) does
not reveal “any negative words or words of exclusion.”
Id. The Pogue court concluded that “the language of
§ 3731(b) includes relators, and the language of (b)(2)
does not exclude them.” Jd. It criticized other courts
that attempted to find implicit exclusion by reference
to the words “official of the United States,” pointing
out that if that were the intent of Congress, it could
have done so explicitly. /d. Finally, the last clause of
the section, “whichever occurs last,” applies to both
subordinate clauses and obviously means that they
should be read together. Jd. at 85. The court of ap-
peals decision and those like it essentially ignore the
last clause of the statute, forgetting “that it is the
17
later of the two alternatives that establishes the time
bar.” Salmeron, 464 F. Supp.2d at 469 (emphasis in
the original).
The fact that the court of appeals and other
courts have erroneously applied the statute and
misconstrued the legislative intent of the 1986
amendments to the FCA has prompted legislative
attempts by the last and current Congresses to cor-
rect this and other erroneous court interpretations.’
Congress is again considering legislation that
would eliminate any confusion caused by the current
statute by creating a uniform ten-year limitations
period.’ This bill was introduced by Senator Grassley,
the sponsor of the 1986 amendments to the FCA
which contained the current limitations period. With
these new amendments, Senator Grassley seeks to
overturn a number of judicial decisions that have
° See S. 2041, False Claims Act Corrections Act of 2007, 153
Cong. Rec. S11506-509 (Sept. 12, 2007) (introduced by Senators
Grassley, Durbin, Leahy, Specter and Whitehouse) (Senator
Grassley states in his introductory remarks: “Recent decisions
by Federal courts have limited the False Claims Act in a way
that was not envisioned when I[ authored the 1986 amendments.
These court decisions threaten to undermine both the spint and
intent of the 1986 amendments.”).
* The proposed Senate amendment of § 3731(b) states
simply:
(b)1) A civil action under section 3730 may not
be brought more than 10 years after the date on
which the violation of section 3729 or 3730 is
committed. (S 458 §6 reintroduced Feb. 24,
2009. )
18
interpreted the FCA in ways not intended by the
drafters of the 1986 amendments.’ Since the Court
has not decided this issue, it should accept Senator
Grassley’s guidance and reach a result that is consis-
tent with the current legislative proposals.
B. The Court Should Grant the Petition to
Resolve the Conflicting Positions of the
Lower Courts Regarding the Appropriate
Standard for Materiality, if any, to be Ap-
plied in FCA Actions.
The FCA does not include a specific requirement
for alleging or proving the materiality of a false claim.
The lower courts, however, have engrafted two differ-
ent standards for materiality onto the FCA. The first
is typified by the decision in United States ex rel.
Berge v. Trustees of Univ. of Alabama, 104 F.3d 1453
(4th Cir. 1997), adopting the “natural tendency,” test
expressed as “whether the false statement has a
natural tendency to influence agency action or is
capable of influencing agency action.” Jd. at 1459. At
least four other circuits have adopted the “natural
tendency” test. See United States v. Bourseau, 531
F.3d 1159, 1171 (9th Cir. 2008), cert. denied, __ US.
___ (2009): United States v. Rogan, 517 F.3d 449, 452
(7th Cir. 2008); United States ex rel. Bahrani v. Cona-
gra, Inc., 465 F.3d 1189, 1204 (10th Cir. 2006), cert.
denied, 128 S. Ct. 388 (2007); United States ex rel. A+
" 153 Cong. Rec. S11506.
19
Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400
F.3d 428, 445-46 (6th Cir. 2004), cert. denied, 546 U.S.
1063 (2005).
As noted by the court in A+ Homecare, “(t]he
Eighth Circuit has adopted a more stringent ‘outcome
materiality’ test, which requires a showing that the
alleged fraudulent actions had ‘the purpose and effect
of causing the United States to pay out money it is
not obligated to pay, or those actions which intention-
ally deprive the United States of money it is lawfully
due.’” A+ Homecare, 400 F.3d at 445 (citing Costner v.
URS Consultants, Inc., 153 F.3d 667, 677 (8th Cir.
1998)). Under the “outcome materiality” test, the
Eighth Circuit held that the plaintiff was required to
show that the government agency would have acted
differently had it known of the omission and con-
cluded that, “‘there is no false claim because [the
agency’ action] would have occurred regardless of
[the defendant’s] actions.’” Id. (citing Rabushka ex
rel. United States v. Crane Co., 122 F.3d 559, 563 (8th
Cir. 1997), cert. denied, 523 U.S. 1040 (1998)).
In seeking to resolve the conflict between the
lower courts, this Court should first address the
question of whether the FCA includes a materiality
element at all. Based on this Court’s decisions in
United States v. Wells, 519 U.S. 482 (1987) and Neder
v. United States, 527 U.S. 1 (1999), a materiality
requirement should not be read into the FCA. The
Wells-Neder framework presents a three-step analysis
for determining whether materiality is required by a
statute. First, if the statute does not specifically
include a materiality element, without more, it is not
20
required. Wells, 519 U.S. at 489-90; Neder, 527 U.S.
at 20 (citing Wells). A materiality element may be
implied, however, if the statute uses terms that have
well-settled common law meanings that include
materiality. Wells, 519 U.S. at 491; Neder, 527 U.S. at
22-23. Finally, this presumption may be rebutted if
the text or the structure of the statute shows that the
addition of a materiality requirement would create an
inconsistency with the rest of the statute. Neder, 527
U.S. at 22-25.
The application of this framework to the seven
different provisions of the FCA imposing liability for
false claims, demonstrates that most of those provi-
sions should not require an implied materiality
element.
Starting with the first prong of the Wells-Neder
analysis, the FCA does not specifically require mate-
riality. Therefore, the seven provisions of the FCA
have to be analyzed separately to find a materiality
requirement.
Sections 3729(a)(1) and (a)(2) are the two most
often cited provisions of the FCA and use the terms
“false or fraudulent claims.” App. 51. The Wells Court
determined that the term “false statement” did not
create a presumption that materiality was an ele-
ment of a statute.” Analyzing the term “fraud,” the
Court in Neder determined that it did require a
* Wells, 519 U.S. at 491.
21
showing of materiality.’ Therefore the use of the word
“fraudulent” could imply that Congress intended that
materiality be an element of subsections (a)(1) and
(a)(2). The term is used, however, in the disjunctive
with the term “false,” which suggests that more
analysis is required. Since both words are used, a
party would only have to prove that a claim is false
and not fraudulent. While ali fraudulent claims are
probably false, not all false claims are necessarily
fraudulent. Therefore, a plaintiff could avoid the
requirement to prove materiality in an FCA action by
just alleging that the defendant made false claims
rather than fraudulent claims.
Even if the focus is on the term “fraudulent” the
remaining language of the statute demonstrates that
materiality should not be required. Both (a)(1) and
(a)(2) require a showing that a false claim is made
“knowingly.” This term is defined as follows:
Knowing and knowingly defined. For pur-
poses of this section, the terms “knowing”
and “knowingly” mean that a person, with
respect to information —
(1) has actual knowledge of the infor-
mation;
(2) acts in deliberate ignorance of the
truth or falsity of the information; or
‘Neder, 527 US. at 21-25
22
(3) acts in ree :ess disregard of the
truth or falsity of the information, and no
proof of specific intent to defraud is required.
31 U.S.C. § 3729(b).
In establishing this relaxed standard for know-
ledge, Congress in 1986 overturned several decisions
which had required heightened proof of scienter. See
James B. Helmer, Jr., False Claims Act: Whistler
Blower Litigation, § 2-4(d) (5th ed. 2007). Specifically,
by eliminating the requirement for specific intent,
Congress was demonstrating that it was creating a
statutory basis for remedying false claims against the
government.”
Sections 3729(a)(3)-(a\(5) use the term “defraud”
to describe the type of wrongdoing those provisions
were attempting to remedy. Moreover, these three
provisions do not use the term “knowingly.” There-
fore, a stronger case can be made for the requirement
of materiality when these provisions are invoked.
'° In this regard, Sanders notes also that included in the
proposals to amend the FCA is a provision that would eliminate
any materiality requirement. Ths* provision states:
Statutory Cause of Action. -. Liability under this sec-
tion is a statutory cause of action all elements of
which are set forth in this section. No proof of any ad-
ditional element of common law fraud or other cause
of action is implied or required for liability to exist for
a violation of subsection (a).
Section 3729 (c), HR 1788, The False Claims Act Corrections Act
of 2009. (Introduced March 30, 2009).
23
However, these provisions are invoked rarely and
they were not part of Petitioner Sanders’ complaint.
Neither sections 3729(a)(6) and (a)(7) use the
terms “fraud,” “fraudulent,” or “defraud.” Therefore,
under the Wells-Neder analysis, there is no require-
ment for a demonstration of materiality. Two of
Sanders’ Customs counts were pled under section
3729(a)(7) since they involved false claims to avoid
paying money to the government.
The different “materiality” tests used by lower
courts require this Court’s guidance on the proper
materiality test to be applied in FCA actions, if any.
Absent clear guidance from the current Congress, the
Court should take this opportunity to address this
question.
C. The Court Should Exercise Its Supervi-
sory Powers to Correct the Lower Courts’
Improper Application of the Materiality
Element Based on the “Natural Tendency”
Test.
If the Court determines that the FCA includes a
materiality element and that element should be
governed by the “natural tendency” test, the Court
should exercise its supervisory powers to ensure that
the test is applied correctly. While both the district
court and the court of appeals purported to apply the
“natural tendency” test, both effectively adopted the
“outcome materiality” test. Both courts determined
24
what Customs would have done had it known the
true facts instead of what Customs could have done.
The district court concluded:
I would find that the Customs decision could
not have been affected by the alleged false
statements relating to permanent installa-
tion because the decision would have been
the same whether or not the components had
been permanently installed. I note, however,
that in my judgment a more precise formula-
tion of the proper inquiry is whether, even in
the absence of permanently installed compo-
nents, Customs still would have classified
the NABI imports as unfinished buses rather
than bus shells.
App. 39.
The court’s assumption about what Customs
would have done had NABI honestly described its bus
body imports is expressly contradicted by the Cus-
toms ruling itself which explicitly stated that its
decision to reclassify the imports as finished busses
was based or representations that the shell contained
a “sudstantial amount of equipment and number of
components necessary for a completed transit bus.”
App. 23. The court had no way of knowing that Cus-
toms would have made the same decision in the
absence of the false claims. Given the facts presented
and the stated position of Customs, the most that the
court could determine is that Customs “could have”
classified the bus shells in either provision. The
court's absolutist position is also called into question
25
by its refusal to consider the government’s belated
attempt to reconsider its intervention decision. App.
35-36 n.1. Certainly, given the government’s demon-
stration of uncertainty, the court should have drawn
the opposite conclusion and acknowledged that Cus-
toms was at least considering classifying the shells as
bus bodies. If Customs was considering that decision,
then as a legal matter, it could have imposed that
classification, and NABI’s false statements would
have been material.
Similarly, the court of appeals minimizes the
components that Sanders alleges to be missing and
then concludes:
Assuming for purposes of argument that
NABI’s statements were false, Sanders has
given us no reason to believe that when Cus-
toms considered a protest that listed twenty
imported components those false statements
regarding one or two missing components —
much less subcomponents — were material to
Customs’ decision.
App. 22. Again, this conclusion flies in the face of the
standard that Customs used to determine the proper
classification: the “substantial amount of equipment
and number of components necessary for a completed
transit bus.” This conclusion also ignores the fact that
the components about which NABI lied were four of
the most important operating systems containing
many components and subcomponents. Given that
this was a protest of the classification of previous
importations, it was at the very least a close question.
26
Obviously NABI thought so, giving it a strong motive
to falsely describe its bus shell imports. How could
the court possibly know whether the false claims
could not have affected the classification decision?
Further, the decision deliberately ignored the
government’s affidavit used to secure a search war-
rant of NABI’s facility. The search warrant reflects
Customs’ belated investigation of Sanders’ allegations
and concludes that he was correct App. 76. Even
though it had the power to do so under Fed. R. Evid.
201(f)," the Panel refused to consider this informa-
tion, because it was “outside” the record in this case.
App. 27. The Panel chose to ignore information that
contradicted its findings and issued an opinion that
was demonstrably at odds with that of the agency
based solely on the fact that Customs’ search warrant
was released after the district court’s decision. Ulti-
mately, had the court of appeals accepted the gov-
ernment’s affidavit, it would have mooted the entire
question of materiality, because the affidavit demon-
strates that the false claims were material under
' See e.g. Philip Medical Sys. International, B.V. v. Bruet-
man, 982 F.2d 211 (7th Cir. 1992); Dobbs v. Anthem Blue Cross
& Blue Shield, 475 F.3d 1176, 1179 (10th Cir. 2007) (“Although
notice is not required under Rule 28(j), good advocates neverthe-
less file such notice out of respect for this Court and a commit-
ment to resolving disputes in an _ expeditious manner.
Particularly when a legal development is controlling, as it is
here, we admonish counsel to bring the relevant authority to the
Court’s attention.”).
27
either the “natural tendency” or “outcome materiali-
ty” tests.
Beyond the fact that the district court and the
court of appeals got the decision wrong, an important
consideration for this Petition is the methodology the
courts employed in reaching that decision. The Cus-
toms ruling does not say what components were
important to its classification decision. The protest
listed 20 components that were on the imported
shell.” Sanders alleges, and the record shows, that at
least four of those components were not complete or
not imported with the shells. The incomplete or
missing components were the front suspension, rear
suspension, power steering, and brake chamber.
Effectively, the Panel held that since NABI lied about
only 4 of the 20 components, the lies were not materi-
al. This defies the concept of materiality based on the
“natural tendency” test. What would be material — 5
of 20, 8 of 20, 10 of 20? There is no way to determine
from the Panel’s decision how many lies would be
material. If this decision is followed by other courts, it
effectively tells those courts that they can ignore legal
requirements and issue judgments based on the
subjective feeling of the court. Far beyond Customs
‘* Those components were: the base structure; body; axles;
front suspension; rear suspension; mms; wheels; power steering;
brake chamber; fuel tank; engine cradle; flooring; partial door
system including the door panels; windshield; outside body trim;
corrosion protection paint; steering wheel; tracking for interior
lights; air duct system; and destination sign door and enclosure.
App. 22, n.4.
28
cases, it gives no guidance to future courts in apply-
ing the natural tendency test, substituting a slippery
slope and judicial arbitrariness for the easily unders-
tood and applied “could have” test. It effectively
states that lies are not necessarily material even
when they go to the core of the government’s decision
making process.
According to the Panel, apparently, the natural
tendency test must involve some sliding scale of
weighing the lies in order to determine materiality.
Customs tells us in their ruling that they focused on
the components to determine the classification. A
showing that NABI hed about one or two, or as in this
case, a minimum of four of those components, is
sufficient evidence to demonstrate that Customs
potentially could have classified the shells as bus
bodies. The Panel improperly substituted its assump-
tions about what Customs would have done instead of
showing deference and respect to what Customs could
have done, and in fact did after the district court’s
decision.
The lower courts effectively applied the “outcome
materiality” test by assuming that there was only one
legal conclusion that could have been made. This is
the wrong application of the “natural tendency” test.
This Court should grant the Petition if only to give
guidance to the lower courts on the proper application
of the “natural tendency” test.
ST ¢
29
CONCLUSION
The petition for writ of certiorari should be
granted.
Respectfully submitted,
Of Counsel: THE CULLEN LAW FIRM, PLLC
JAMES A. MOODY JOSEPH A. BLACK
1101 30th Street, NW Counsel of Record
Suite 300 1101 30th Street, NW
Washington, D.C. 20007 Suite 300
(202) 298-4766 Washington, D.C. 20007
(202) 944-8600
App. 1
546 F.3d 288
United States Court of Appeals,
Fourth Circuit.
UNITED STATES of America ex rel.
Thornton G. SANDERS, Plaintiff-Appellant,
v.
NORTH AMERICAN BUS INDUSTRIES,
INCORPORATED; Deloitte & Touche USA, LLP;
North American Bus Industries Kft.,
Defendants-Appellees,
and
North American Bus Industries, Rt.;
American Ikarus; Peter Z. Rona;
The First Hungary Fund, Defendants.
Taxpayers Against Fraud Education Fund,
Amicus Supporting Appellant.
No. 07-1773.
Argued: Sept. 24, 2008.
Decided: Nov. 5, 2008.
ARGUED: Joseph A. Black, Cullen Law Firm,
P.L.L.C., Washington, D.C., for Appellant. James
Patrick Ulwick, Kramon & Graham, Baltimore,
Maryland; Amelia Toy Rudolph, Sutherland, Asbill &
Brennan, Atlanta, Georgia, for Appellees. ON
BRIEF: Daniel E. Cohen, Cullen Law Firm, P.L.L.C.,
Washington, D.C., for Appellant. Melissa H. Maxman,
Baker & Hostetler, L.L.P., Washington, D.C., for
Appellees North American Bus Industries, Incorpo-
rated and North American Bus Industries, Kft. Mike
Bothwell, Sara Vann, Bothwell & Harris, P.C., Ros-
well, Georgia; James W. Moorman, Joseph E.B.
App. 2
White, Taxpayers Against Fraud Education Fund,
Washington, D.C., for Amicus Supporting Appellant.
Before WILKINSON, Circuit Judge, HAMIL-
TON, Senior Circuit Judge, and JAMES C. CACH-
ERIS, Senior United States District Judge for the
Eastern District of Virginia, sitting by designation.
Affirmed by published opinion. Judge WILKIN-
SON wrote the opinion, in which Senior Judge HAM-
ILTON and Senior Judge CACHERIS joined.
OPINION
WILKINSON, Circuit Judge:
This appeal arises from a qui tam action under
the False Claims Act brought by Thornton G. Sanders
against his former employer, North American Bus
Industries, Inc. (“NABI”). Sanders alleges that NABI
defrauded the United States by underpaying duties
on bus frames that NABI imported from Hungary and
by falsely certifying that the buses that NABI manu-
factured using those frames were eligible for federal
“Buy America” subsidies. Sanders also alleges that
Deloitte & Touche USA, LLP, participated in NABI’s
fraud.
The district court rejected all of Sanders’s claims
on various grounds. Sanders now challenges each of
those dismissals, asserting myriad defects of both fact
and law. We agree, however, with the district court
that plaintiff has failed to establish the necessary
App. 3
elements of an FCA claim. We thus affirm the judg-
ment.
I.
A.
NABI is an Alabama corporation that manufac-
tures and sells transit buses. The manufacturing
process occurs in stages. First, the bus frames, or
“shells,” are constructed by NABI’s corporate parent,
North American Bus Industries, Kft. (“NABI Hun-
gary”). NABI Hungary then ships the shells to NABI’s
headquarters in Alabama. The shipments include a
number of components, like the wheels, some of
which are fixed permanently to the shells prior to
shipment. NABI then completes the assembly, using
both the shipped components and additional Ameri-
can-made parts.
NABI distributes the completed buses to munici-
palities and transit authorities throughout the
United States. The federal government subsidizes
these local entities for purchases of buses that meet
federal “Buy America” requirements. See 49 U.S.C.
§ 5323(j); 49 C.F.R. §§ 661.1-.21. Local entities receiv-
ing subsidies require NABI to certify that its buses
satisfy the Buy America provisions. In particular,
NABI must certify that more than sixty percent of the
components in its completed buses (by cost) are
produced in the United States.
App. 4
The bus shells and components that NABI im-
ports from its Hungarian parent are taxed according
to the Harmonized Tariff Schedule of the United
States (“HTSUS”), which provides the various classi-
fications and corresponding rates of duty for imported
merchandise. See 19 U.S.C. § 1202. Prior to June
1998, NABI’s bus shells were classified under the
HTSUS subheading for “Bodies (including cabs), for
. motor vehicles.” HTSUS subheading 8707.90.50.
That classification carried a duty of four percent of
the value of the imported bus shells and components.
In June 1998, NABI hired Damon Pike, a director
at Deloitte, to file a protest on NABI’s behalf with the
U.S. Customs Service (currently U.S. Customs and
Border Protection). See 19 U.S.C. § 1514 (Customs
protests); 19 C.F.R. pt. 174. NABI sought to have its
previous imports reclassified under the HTSUS
subheading for “Motor vehicles [with a diesel engine]
... \djesigned for the transport of 16 or more persons,
including the driver.” HTSUS subheading 8702.10.30.
In other words, NABI sought to have the imports that
previously had been classified as mere bodies of buses
reclassified under the subheading for completed
motor vehicles. Under the latter classification, NABI’s
imports would have been eligible for duty-free treat-
ment under the Generalized System of Preferences
because the imports were from Hungary. See 19
U.S.C. §§ 2461-2467.
NABI’s protest relied primarily on General Rule
of Interpretation 2(a) of the HTSUS. Rule 2(a) pro-
vides that “[aJny reference in a heading to an article
App. 5
shall be taken to include a reference to that article
incomplete or unfinished, provided that, as entered,
the incomplete or unfinished article has the essential
character of the complete or finished article.”
Based on that rule, NABI argued that its bus
shells should be reclassified because they had tne
“essential character” of finished motor vehicles. NABI
supported that argument by listing twenty compo-
nents that it asserted were “permanently installed”
on the bus shells at the time of importation. NABI’s
protest did concede that, when compared with the
imports in a prior Customs ruling on trolley bus
shells, NABI’s imported components were somewhat
fewer and had a somewhat lesser value. NABI’s
protest further expressly listed twelve components
that NABI acknowledged were installed only after
importation. But NABI argued that those differences
and missing parts did not alter the “essential charac-
ter” of NABI’s imports.
In November 1998, Customs issued a decision
granting NABI’s protest and holding that NABI’s
imports should have been classified under subhead-
ing 8702.10.30 as “motor vehicles” eligible for duty-
free treatment. The decision cited the components
listed in NABI’s protest and noted that the remaining
components were installed after importation. Cus-
toms then stated its finding that “[t]he bus shells
when imported contain a substantial amount of
equipment and number of components necessary for
a completed transit bus.” Customs concluded that
App. 6
NABI’s imports, even in their “unfinished state,” had
the “essential character” of motor vehicles.
Based on the successful protest decision, NABI
received refunds of duties that it had paid on bus
shells imported between April and August 1997;
statutory deadlines prevented NABI from seeking
refunds for earlier imports. Apparently based in part
on the advice of Damon Pike of Deloitte, NABI also
began classifying its subsequent imports under the
duty-free subheading for motor vehicles.
B.
Thornton G. Sanders, the gui tam relator in this
action, is a former executive of NABI. NABI hired
Sanders as Vice President and Chief Financial Officer
in 1993. In 1994, Sanders became President and
Director of NABI.’
During his employment at NABI, Sanders raised
questions within the company about certain contracts
between NABI and NABI Hungary. NABI and its
parent company entered into two separate contracts
for each set of bus shells that NABI imported in the
years from 1993 to 1997. Under the first contract,
NABI paid NABI Hungary for the bus shells and
their components. Under the second contract, NABI
At that time, NABI was known as American Ikarus, Inc.
Any distinctions between NABI and its predecessor corporation
are immaterial to this case.
App. 7
paid NABI Hungary for engineering and technology
services. NABI characterized those services as con-
sisting of both tangible designs and intangible techni-
cal information that assisted NABI in assembling the
imported shells and parts. Because NABI did not
consider the engineering and technology services to
be part of the value cf the imported bus shells, NABI
did not include the cost of those services when declar-
ing the value of the shells to Customs, or when calcu-
lating the eligibility of its buses for Buy America
subsidies.
In 1996, Sanders sent memoranda to others at
NABI recommending that NABI discontinue its
separate payments for engineering and technology
services. Sanders asserted that the company’s pay-
ments did not accurately reflect the technical assis-
tance that NABI was receiving from NABI Hungary.
Apparently acting on Sanders’s recommendation,
NABI discontinued its separate contracts for engi-
neering and technology services in 1997.
NABI also terminated Sanders’s employment in
1997, sho-tly after Sanders proposed that the com-
pany be sold to a group of investors that included
himself and NABI’s other senior managers. Sanders
subsequently wrote a letter to another NABI em-
ployee stating that he had been fired because execu-
tives at NABI Hungary viewed Sanders’s proposed
purchase of the company as an act of disloyalty.
App. 8
C.
Sanders subsequently filed suit against NABI in
2002 under the qui tam provisions of the False
Claims Act (“FCA”). 31 U.S.C. §§ 3729-3733. Section
3729 of the FCA creates liability in the form of treble
damages and civil penalties of up to $10,000 for
perscns who make false or fraudulent claims for
payment to the United States. Id. § 3729(a). And
Section 3730 provides that civil actions under the
FCA may be brought either by the Attorney General,
id. § 3730(a), or by private persons, known as rela-
tors, who sue on the federal government's behalf, id.
§ 3730(b). A relator may recover up to thirty percent
of the proceeds of a successful action, plus attorney’s
fees and costs. Jd. § 3730(d). The relator must file his
complaint under seal and notify the government of
his action, and the government may then elect either
to intervene in the suit or to allow the relator to
continue the suit alone. Jd. § 3730(b). The United
States has consistently declined to intervene in
Sanders’s action.
Sanders stated five causes of action under the
FCA. In Count I, Sanders claimed that NABI had
falsely certified that its buses were eligible for Buy
America subsidies. The district court granted sum-
mary judgment to NABI on Count I because Sand-
ers’s claims were barred by the FCA’s six-year statute
of limitations in 31 U.S.C. § 3731(b)(1) and because
the United States had not suffered actual damages.
App. 9
In Counts II and III, Sanders claimed that the
protest submitted to Customs by NABI and Deloitte
in 1998 contained a false description of NABI’s im-
ported bus shells. The district court granted Deloitte’s
motion to dismiss both counts as time-barred. The
district court also granted summary judgment to
NABI on Counts II and III. The court held that any
alleged false statements in NABI’s protest were
immaterial to Customs’ decision to reclassify NABI’s
imports.
In Count IV, Sanders claimed that NABI had also
underpaid its duties by failing to declare to Customs
the value of the separate payments that NABI made
for engineering and technology services. The district
court granted summary judgment to NABI, holding
that the successful Customs decision made clear that
NABI never owed any duties on its imports. Thus,
even if NABI had failed to declare the imports’ full
value, the court held that NABI had not violated the
FCA because NABI had not deprived the government
of any money that it was actually due.
Finally, Sanders claimed in Count V that he had
been wrongfully discharged in violation of the FCA’s
anti-retaliation provision. 31 U.S.C. §3730(h). The
district court dismissed Sanders’s claim as time-
barred under the Supreme Court’s decision in Gra-
ham County Soil & Water Conservation District v.
United States ex rel. Wilson, 545 U.S. 409, 125 S.Ct.
2444, 162 L.Ed.2d 390 (2005). Sanders did not oppose
that dismissal.
App. 10
Sanders now appeals the district court’s disposi-
tion of each of his claims. We discuss those claims in
turn.
ik.
Sanders first contends that the district court
misconstrued the FCA’s statute of limitations, 31
U.S.C. § 3731(b), which provides the following:
A civil action under section 3730 may not be
brought —
(1) more than 6 years after the date on
which the violation of section 3729 is com-
mitted, or
(2) more than 3 years after the date when
facts material to the right of action are
known or reasonably should have been
known by the official of the United States
charged with responsibility to act in the cir-
cumstances, but in no event more than 10
years after the date on which the violation is
committed,
whichever occurs last.
The district court held that the six-year limita-
tions period in Section 3731(b)(1) barred Sanders’s
claims against NABI in Count I and against Deloitte
in Counts II and III. Sanders argues that the district
court should have applied Section 3731(b)\(2) to ex-
tend the limitations period for those claims. Sanders
interprets Section 3731(b)(2) to allow a relator to
bring a cause of action within ten years of an FCA
App. 11
violation, as long as the relevant government official
has not had actual or constructive knowledge of the
violation for more than three years. We hold that
Section 3731(b)(2) extends the FCA’s statute of limi-
tations beyond six years only in cases in which the
United States is a party.
It would be problematic to read the text of the
statute any other way. Section 3731(b)(2) refers only
to the United States — and not to relators. Thus,
Congress intended Section 3731(b)(2) to extend the
FCA’s default six-year period only in cases in which
the government is a party, rather than to produce the
bizarre scenario in which the limitations period in a
relator’s action depends on the knowledge of a non-
party to the action.
The specific language in the statute bears this
out. The limitations period in Section 3731(b)(2)
starts when the government knows or should know of
“facts material to the right of action.” This language
makes perfect sense when referring to an action
brought by the government: the limitations period is
based on the government’s knowledge of “facts mate-
rial to the right of action” because that particular
knowledge notifies the government that it has an
actionable FCA claim. But applying the statute’s
language to a relator’s action makes no sense whatso-
ever. The government’s knowledge of “facts material
to the right of action” does not notify the relator of
anything, so that knowledge cannot reasonably begin
the limitations period for a relator’s claims. Further-
more, once the material facts supporting a right of
App. 12
action are known to the United States, it is doubtful
that the government official “charged with responsi-
bility to act in the circumstances” could be charged
with any responsibility other than to see that the
government brings or joins an FCA action within the
limitations period. After all, government officials are
certainly not “charged with responsibility” to ensure
that a relator brings a timely FCA action. All of these
textual elements demonstrate that Section 3731(b)(2)
makes sense only when read to extend the FCA’s
limitations period in actions brought or joined by the
United States.
Our reading of the statute’s text finds support in
the fact that Section 3731(b)(2) is almost identical to
another federal statute, 28 U.S.C. § 2416(c). Section
2416(c) tolls the generally applicable statute of limi-
tations in actions brought by the United States — and
only by the United States — until “facts material to
the right of action” are actually or constructively
known by an “official of the United States charged
with the responsibility to act in the circumstances.”
Section 2416 was enacted in 1966. See Pub.L. No. 89-
505, § 1, 80 Stat. 304, 305 (1966). Congress added
Section 3731(b)(2) to the FCA in 1986 (the FCA
previously had a uniform six-year limitations period).
See Pub.L. No. 99-562, §5, 100 Stat. 3153, 3158
(1986). Thus, it appears that when enacting Section
3731(b\2), Congress adopted the language from
Section 2416(c) that applies only to actions brought
by the government. This apparent transcription of
statutory language supports the conclusion that the
App. 13
text of Section 3731(b)(2) lengthens the FCA’s limita-
tions period only when the government is a party. See
United States ex rel. Sikkenga v. Regence Bluecross
Blueshield of Utah, 472 F.8d 702, 724-25 (10th
Cir.2006).
Sanders proffers a contrary reading of the stat-
ute’s text. Sanders argues that Section 3731(b)(2)’s
failure to mention relators actually supports the
application of that section to qui tam actions. He
contends that the phrase “[a] civil action under
section 3730” in the preface to Section 3731(b) in-
cludes all civil actions under the FCA; he then argues
that Section 3731(b)(2) does not contain any language
expressly excluding relator actions; and he therefore
concludes that relator actions fall within the scope of
Section 3731(b)(2).
Sanders’s argument fails for two reasons. First,
Section 3731(b)(2) does contain language excluding
actions by relators because the statutory language
makes no sense when applied to an action in which
the government is not a party. Second, we also dis-
agree with Sanders’s other premise, that “[a] civil
action” must be read indiscriminately to encompass
all FCA claims in all contexts. In fact, the Supreme
Court recently rejected almost exactly the same
argument in Graham County Soil & Water Conserva-
tion District v. United States ex rel. Wilson, 545 U.S.
409, 125 S.Ct. 2444, 162 L.Ed.2d 390 (2005). In
Wilson, the Supreme Court held that Section
3731(b)’s reference to civil actions under Section 3730
did not include anti-retaliation claims, even though
App. 14
FCA anti-retaliation claims are brought under Sec-
tion 3730(h). 545 U.S. at 411, 125 S.Ct. 2444. The
Court recognized that “Congress used the term ‘action
under section 3730’ imprecisely in § 3731 and, in
particular, that Congress sometimes used the term to
refer only to a subset of § 3730 actions.” Id. at 418,
125 S.Ct. 2444. And the Court reasoned that when “a
civil action” was read in context, Section 3731(b)(1)’s
reference to a “violation of section 3729” suggested
that the statute did not include anti-retaliation
claims because a violation of Section 3729 was not an
element of those claims. See 545 U.S. at 415-16, 125
S.Ct. 2444. The same reasoning applies here. When
the phrase “a civil action” is read in context, Section
3731(b\(2)’s restrictive language referring to the
United States — and not to relators — makes clear that
only a subset of civil actions may benefit from the
extended limitations period in Section 3731(b)(2) —
those in which the government is a party.
Sanders’s proposed construction of the statute
also generates numerous practical difficulties. Under
Sanders’s reading, the statute of limitations in qui
tam actions would depend on the knowledge of a
nonparty government official. Not only is that result
counterintuitive, but it would also cause innumerable
headaches for both defendants and the government
during discovery. To advance a statute of limitations
defense, defendants would be forced to seek out
and litigate the identity and knowledge of a govern-
ment official not a party to the action. And govern-
ment agencies would be subjected to disruption and
App. 15
expense in responding to discovery requests in ac-
tions in which the government affirmatively chose to
avoid those concerns by declining to intervene. We
are reluctant to place these burdens on FCA defen-
dants and the government absent a clear textual
basis for doing so.
Sanders’s reading of Section 3731(b)(2) also
would allow relators to sit on their claims for up to
ten years before filing an action and informing the
government of the material facts. Indeed, relators
would have a strong financial incentive to allow false
claims to build up over time before they filed, thereby
increasing their own potential recovery. By empower-
ing relators to extend the limitations period at will,
Sanders’s reading would render the six-year limita-
tions period in Section 3731(b)(1) superfluous in
nearly all FCA cases, thereby contradicting “our duty
to give effect, if possible, to every clause and word of a
statute.” Duncan v. Walker, 533 U.S. 167, 174, 121
S.Ct. 2120, 150 L.Ed.2d 251 (2001) (internal quota-
tions omitted); see Sikkenga, 472 F.3d at 725-26
(agreeing that the approach advocated by Sanders
would render Section 3731(b)(1) superfluous).
Moreover, allowing relators to sit on their claims
would undermine the purpose of the qui tam provi-
sions of the FCA: to combat fraud quickly and effi-
ciently by encouraging relators to bring actions that
the government cannot or will not — “to stimulate
actions by private parties should the prosecuting
officers be tardy in bringing the suits.” United States
ex rel. Marcus v. Hess, 317 U.S. 537, 547, 63 S.Ct.
App. 16
379, 87 L.Ed. 443 (1943); Sikkenga, 472 F.3d at 725.
Sanders’s interpretation would instead allow fraud to
continue unabated for up to ten years. And a relator’s
failure to notify the government promptly of FCA
violations might also cause the government to lose
out on its ability to bring a criminal fraud prosecu-
tion, which must be filed within five years of the
violation. See 18 U.S.C. §§ 287, 3282; United States ex
rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1218 (9th
Cir.1996).
This issue has admittedly given rise to different
approaches in the federal courts. Our interpretation
of Section 3731(b) is decidedly the majority approach
in the federa] courts of appeals, where no circuit court
has accepted Sanders’s view that Section 3731(b)(2)
extends the limitations period in qui tam actions
regardless of how long the relator has known of the
material facts. The Tenth Circuit has expressly held
that Section 3731(b)(2) does not apply to qui tam
suits in which the government has not intervened.
Sikkenga, 472 F.3d at 725; see also United States ex
rel. Erskine v. Baker, No. 99-50034, 2000 WL 554644,
at *1 (5th Cir. Apr.13, 2000) (same); United States ex
rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493,
515, 519-20 (6th Cir.2007) (applying six-year limita-
tions period to a relator’s claims); Foster v. Savannah
Commce’n, 140 Fed.Appx. 905, 907-08 (11th Cir.2005)
(same). But see Hyatt, 91 F.3d 1211, 1214-18 (9th
Cir.1996) (holding that Section 3731(b)\(2) applies
when the government is not a party but that the
relator is the “official of the United States” on whose
App. 17
knowledge the limitations period depends); United
States ex rel. Malloy v. Telephonics Corp., 68 Fed.Appx.
270, 272-73 (3d Cir.2003) (also interpreting Section
3731(b)(2) to depend on the relator’s knowledge).*
The majority of district courts in circuits other
than these are also in accord with our interpretation.
See United States ex rel. Fisher v. Network Software
Assocs., Inc., 180 F.Supp.2d 192, 194 (D.D.C.2002);
United States ex rel. El Amin v. George Washington
Univ., 26 F.Supp.2d 162, 172-73 (D.D.C.1998); United
States ex rel. Finney v. Nextwave Telecom, Inc., 337
B.R. 479, 486 (S.D.N.Y.2006); United States ex rel.
Thistlethwaite v. Dowty Woodville Polymer, Ltd., 6
F.Supp.2d 263, 265 (S.D.N.Y.1998); United States ex
rel. Vosika v. Star”ey Labs., Inc., No. Civ. 01-709,
2004 WL 2065127, at *2-3 (D.Minn. Sept.8, 2004). A
minority, however, has adopted Sanders’s view. See
United States ex rel. Pogue v. Diabetes Treatment Ctrs.
of America, 474 FSupp.2d 75, 81-89 (D.D.C.2007);
United States ex rel. Salmeron v. Enterprise Recovery
Sys., Inc., 464 F.Supp.2d 766, 769-70 (N.D.II].2006);
* Because we hold that Sanders cannot seek the benefit
of Section 3731(b)(2), we need not and do not decide which
specific government official is “charged with responsibility to act
in the circumstances” — a question that has perplexed some
court.. Compare United States v. Macomb Contracting Corp.,
763 F.Supp. 272, 274 (M.D.Tenn.1990) (relevant official must
be within the Department of Justice) with United States v.
Tech Refrigeration, 143 F.Supp.2d 1006, 1009-10 (N.D-II1.2001)
(knowledge of other government officials may be imputed to
DOJ).
App. 18
United States ex rel. Kreindler & Kreindler v. United
Techs. Corp., 777 F.Supp. 195, 204-05 (N.D.N.Y.1991).
Based on our interpretation of Section 3731(b),
we affirm the district court’s grant of summary judz-
ment on Count I to NABI. Before the district court,
Sanders limited the scope of Count I solely to claims
hat arose outside of the six-year limitations period.
We therefore need not reach the question of whether
the government suffered actual damages from the
Buy America fraud that Sanders alleged in Count I.
We also affirm the district court’s dismissal of Counts
II and III against Deloitte as time-barred.’
* Sanders tries to circumvent the district court’s holding
that his claims against Deloitte under Count III were untimely.
Even though all of Deloitte’s alleged misconduct occurred
outside of six years, Sanders contends that Deloitte caused
subsequent violations by NABI within the limitations period.
But that was not the theory of liability expressed in Count IJ] of
Sanders’s complaint, which did not allege any independent FCA
violations other than the supposedly false Customs protest. See
Second Amended Complaint {| 40. Count III as pleaded against
Deloitte was therefore time-barred. And even if we were to
construe Count III to contemplate additional, independent FCA
violations, Sanders’s complaint warranted dismissal for other
reasons. For one, Sanders failed to adequately plead the element
of causation because Deloitte’s alleged advice to NABI to enter
its bus shells duty-free was superfluous to the Customs decision
itself. Furthermore, Sanders failed to allege any FCA violations
within the statutory period with the particularity required by
Federal Rule of Civil Procedure 9(b).
App. 19
III.
Sanders contends that the district court erred
when it granted summary judgment to NABI on
Counts II and III of Sanders’s complaint. In those
counts, Sanders claimed that NABI violated the FCA
because the protest that NABI submitted to Customs
in 1998 misrepresented the condition of the com-
pany’s bus shells when they were imported, thereby
improperly allowing NABI to obtain duty-free treat-
ment for its imports. The district court held that
Sanders failed to establish that the alleged false
statements made by NABI in its protest were mate-
rial to Customs’ decision to reclassify NABI’s imports.
The elements of an FCA claim are straightfor-
ward. “(T]he plaintiff must prove: (1) that the defen-
dant made a false statement or engaged in a
fraudulent course of conduct; (2) such statement or
conduct was made or carried out with the requisite
scienter; (3) the statement or conduct was material;
and (4) the statement or conduct caused the govern-
ment to pay out money or to forfeit money due.”
Harrison v. Westinghouse Savannah River Co., 352
F.3d 908, 913 (4th Cir.2003). The standard for mate-
riality in the Fourth Circuit is also settled. “Under
the FCA, a statement or course of conduct is material
if it ‘has a natural tendency to influence agency
action or is capable of influencing agency action.”
United States ex rel. Wilson v. Kellogg Brown & Root,
Inc., 525 F.3d 370, 378 (4th Cir.2008) (quoting United
States ex rel. Berge v. Bd. of Trs. of the Univ. of Ala.,
104 F.3d 1453, 1460 (4th Cir.1997)).
App. 20
Sanders did not allege under Counts II and
III that NABI made any false statement outside of
the protest that it submitted to Customs. Second
Amended Complaint [J 37-41. We therefore analyze
only the materiality of the protest’s alleged misstate-
ments. NABI argued that its bus shells should be
reclassified because they had the “essential charac-
ter” of finished motor vehicles. And to support that
argument, the protest listed twenty components and
stated that those compunents were “permanently
installed” when the shells were imported.
Before the district court, Sanders claimed ini-
tially that the protest was materially false because
some of the named components were not “perma-
nently installed.” Second Amended Complaint 24;
Opposition to Deloitte’s Motion to Dismiss at 18 (“The
Amended Complaint also sets forth the factual basis
for the falsity of the protest, i.e., that at least seven
specific components were not permanently in-
stalled.”). For example, Sanders contended that the
protest was false because the axles imported with the
bus shells had to be removed and subsequently
reattached after importation. Second Amended Com-
plaint ¥ 26.
Sanders’s initial argument failed because the
issue of permanent installation was clearly immate-
rial to Customs’ classification of NABI’s bus sheils.
Customs’ decision in favor of NABI did not rely on a
finding that any components were installed perma-
nently. Instead, it relied solely on a finding that
the bus shells “contain[ed] a substantial amount of
App. 21
equipment and number of components necessary for a
completed transit bus.” A previous Customs ruling
(cited by NABI in its protest) also looked only to the
presence of components, not to whether they were
permanently installed. Sanders therefore eventually
acknowledged in his summary judgment motion that
permanent installation was immaterial: “For classifi-
cation purposes, it does not matter if any of the
components were permanently installed.” Sanders’s
Motion for Summary Judgment at 14.
After conceding on the issue of permanent instal-
lation, Sanders nonetheless argues that NABI’s
protest was materially false because a few of the
components listed in the protest were either them-
selves partially incomplete or were not actually
imported with the bus shells. But even when the
evidence in the record is viewed generously‘in Sand-
ers’s favor, it is clear that the protest at most con-
tained minor deficiencies. The evidence shows that no
more than one or two subcomponents of the suspen-
sion and power steering systems were not imported
with the bus shells. Most, but not all, of the buses’
wheels and tires were included. And some of NABI’s
bus shells (apparently beginning with the ones im-
ported in the spring of 1998) did not include brake
chambers and were imported with axles that were
removed and sent back to Hungary. Sanders does not
allege that any other components listed in NABI’s
protest were missing or incomplete, nor does the
evidence in the record suggest that to be the case.
App. 22
When the record evidence is properly character-
ized, the flaw in Sanders’s claim is obvious. Assuming
for purposes of argument that NABI’s statements
were false, Sanders has given us no reason to believe
that when Customs considered a protest that listed
twenty imported components,’ those false statements
regarding one or two missing components — much less
subcomponents -- were material to Customs’ decision.”
Sanders has focused most of his energy on alleg-
ing falsity in the protest by diving into the minute
details of the subcomponents of the bus shells. But as
Sanders’s claims of falsity become aarrower, the
alleged falsehoods become less likely to be material.
That is particularly so where the question for Cus-
toms was not whether every component and subcom-
ponent in the protest was present, but whether the
bus shells had the “essential character” of buses.
When it answered that question in the affirmative,
Customs did not rely on the presence of any specific
component. Instead, its decision found in broad terms
“ Those components were: the base structure; body; axles;
front suspension; rear suspension; rims; wheels; power steering;
brake chamber; fuel tank; engine cradle; flooring; partial door
system including the door panels; windshield; outside body trim;
corrosion protection paint; steering wheel; tracking for interior
lights; air duct system; and destination sign door and enclosure.
* The protest also acknowledged that twelve components
were not installed: the propulsion system; traction system;
cooling system; heating and air conditioning; electrical system;
bumpers; seats and stanchions; side windows; interior lighting;
exterior lamps; passenger signals; and non-standard customer
options.
App. 23
that the bus shells “contain[ed] a substantial amount
of equipment and number of components necessary
for a completed transit bus.” Thus, we find no reason
to believe that the particulars proffered by Sanders
had any bearing on Customs’ holistic analysis.
Sanders, however, takes vigorous exception to the
actions of both Customs and the district court. First,
Sanders attempts to find fault with the district
court’s precise expression of the materiality standard.
He argues that the district court applied the incorrect
test by analyzing whether the missing components or
subcomponents in the protest “would have,” rather
than “could have,” affected Customs’ decision. But the
district court expressly found a lack of materiality
under the “could have” formulation pressed by Sand-
ers. JA 1430. And regardless, the materiality inquiry
does not turn on questions of “would have” versus
“could have.” The standard is whether NABI’s alleged
false statements had “a natural tendency to influence
agency action or [were] capable of influencing agency
action.” Berge, 104 F.3d at 1460. Under that standard,
the false statements alleged by Sanders were imma-
terial to Customs’ decision.
Sanders also disagrees with the determination by
Customs that NABI’s bus shells were properly classi-
fied as motor vehicles. Sanders thinks that the shells
were so incomplete that they should have been classi-
fied under the alternative subheading for “bodies,”
and he goes on at length about 39 components that he
asserts were missing from the shells. But of those 39
supposedly missing components, Sanders points to
App. 24
only 3 that were listed in NABI’s protest as being
present in the bus shells. Brief of Appellant at 10-12.
NABI also explicitly told Customs that many more of
those 39 components were not included with its
shells. And Sanders conceded at oral argument that
NABI had made no misrepresentation to Customs
regarding most of these 39 components. Furthermore,
the Customs decision reflected the agency’s knowl-
edge that NABI’s bus shells were far from complete.
The decision stated that the bus shells arrived in the
United States in an “unfinished state” and that only
then were “the remaining necessary parts ... in-
stalled to complete the transit busles].” Yet Customs
still decided that NABI’s bus shells had the “essential
character” of motor vehicles. When Sanders com-
plains that too many components were missing from
NABI’s bus shells for the shells to be classified as
motor vehicles, he is therefore complaining not about
misconduct by NABI, but about the Customs decision
itself. Sanders may think that Customs’ decision was
wrong, but that does not make NABI’s statements
materially false.
IV.
Sanders next contends that the district court
erred when it granted summary judgment to NABI on
Count IV of Sanders’s complaint. Sanders claimed in
Count IV that — prior to its successful protest —- NABI
underpaid its duties to Customs because the company
failed to declare as part of the vaiue of its bus shells
App. 25
the payments that it made to NABI Hungary for
engineering and technology services.
We agree with the district court that Sanders
failed to satisfy the fourth element of a cause of
action under the FCA: that NABI’s allegedly false
statement or conduct “caused the government to pay
out money or to forfeit money due.” Harrison, 352
F.3d at 913. Because Customs determined that
NABI’s bus shells qualified for duty-free treatment
under the HTSUS subheading for motor vehicles,
NABI owed no duties on its imports, regardless of
their declared value. Thus, even if NABI declared less
than the correct value, NABI did not avoid any obli-
gation to pay money to the government, 31 U.S.C.
§ 3729(a)(7), and the government forfeited no money
that it was due.
Sanders responds with a creative — yet erroneous
— argument. Sanders points out that when NABI filed
its protest with Customs in 1998, statutory deadlines
prevented the company from obtaining refunds of
duties that it had paid before April 1997. Had NABI
declared a larger value for its imports prior to April
1997, therefore, Sanders observes that NABI could
not have recovered any of the extra duties that it
would have paid. From this, Sanders concludes that
the government suffered a loss in the additional
amount that it would have received — and kept — had
NABI declared the full value of its imports prior to
April 1997.
App. 26
Sanders’s argument fails because the availability
of a refund is irrelevant to the issue of whether the
government forfeited money that it was due in the
first place. Even if NABI could not obtain a refund of
past duties, the Customs decision demonstrated that
NABI should have been paying no duties all along.
Thus, NABI cannot be said to have cheated the
government out of anything that it was due. In fact,
the earlier misclassification of NABI’s imports
worked in the government’s favor by erroneously
subjecting those imports to taxation. And the only
reason that the limitations period on refunds bears
any significance is that it saved the government from
making NABI whole on its overpayments. Sanders
essentially argues that NABI should be liable for
failing to provide the government an additional
windfall. That argument cannot sustain the fourth
element of an FCA claim, so we affirm the district
court’s grant of summary judgment on Count IV.
° Sanders also appeals the district court’s dismissal of his
anti-retaliation claim under Section 3730(h). Sanders concedes,
and we agree, that the district court correctly dismissed that
claim as time-barred under the Supreme Court's decision in
Graham County Soil & Water Conservation District v. United
States ex rel. Wilson, 545 U.S. 409, 125 S.Ct. 2444, 162 L.Ed.2d
390 (2005). Sanders contends that his claim should be reinstated
if Congress enacts legislation to overrule the result in Wilson.
No such legislation has been enacted, so we affirm on this claim
also.
App. 27
V.
While this appeal was pending, Sanders submit-
ted what he styled as two pieces of supplemental
authority regarding developments within the past
year: claims that Customs reclassified certain bus
shells that NABI imported in December 2007, and
claims that the government is investigating NABI for
possible criminal violations relating to the classifica-
tion of its imports. Our decision expresses no view
whatsoever on these contentions. They are not part of
the record before us, and we refuse to speculate as to
the potential outcome of any ongoing investigations.
Our decision tenders no general assessment on
NABI’s past, current, or future conduct. We hold only
that on the record in this case, the district court
properly granted the defendants’ motions to dismiss
and for summary judgment. The district court’s
judgment is therefore
AFFIRMED.
App. 28
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1773
(1:02-cv-03084-JFM)
UNITED STATES OF AMERICA,
ex rel. Thornton G. Sanders,
Plaintiff-Appellant,
v.
NORTH AMERICAN BUS INDUSTRIES,
INCORPORATED; DELOITTE & TOUCHE USA,
LLP; NORTH AMERICAN BUS INDUSTRIES KFT.,
Defendants-Appellees.
and
NORTH AMERICAN BUS INDUSTRIES, RT;
AMERICAN IKARUS; PETER Z. RONA;
THE FIRST HUNGARY FUND,
Defendants.
TAXPAYERS AGAINST FRAUD EDUCATION
FUND,
Amicus Supporting Appellant.
ORDER
(Filed Oct. 30, 2008)
App. 29
Upon consideration of appellant’s motion to take
judicial notice of affidavit, the Court denies the
motion.
For the Court
/s/ Patricia S. Connor
Clerk
App. 30
UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND
CHAMBERS OF 101 WEST LOMBARD STREET
J. FREDERICK MOTZ BALTIMORE, MARYLAND
UNITED STATES 21201
DISTRICT JUDGE (410) 962-0782
(410) 962-2698 FAX
June 25, 2007
Memo to Counsel Re: Sanders v. North American
Bus Industries
Civil No. JFM-02-3084
Dear Counsel:
I have reviewed the memoranda submitted in
connection with defendant’s motion for summary
judgment as to count I. The motion is granted.
It is undisputed that plaintiffs’ claim concerning
the 121 buses that were sold to Miami Metro Dade,
Maryland MTA, and WMATA arose more than six
years before the filing of the complaint in this action.
Therefore, the sole question presented by defendant’s
motion is whether the six-year limitations period
established by 31 U.S.C. §3731(b)(1), or the ten-year
limitations period established by 31 U.S.C.
§3731(b)(2), applies in a case brought by a relator in
which the Government decides not to intervene. As
you know, by a letter ruling dated December 19, 2005
I held (in connection with a claim asserted by plain-
tiffs against Deloitte & Touche) that the six-year
limitations period applies in such a case. However,
App. 31
since the time I rendered that decision, Judge Lam-
berth has held the ten-year limitations period applies
in all False Claims Act cases, whether or not the
Government has brought or chosen to intervene in
the action. United States ex rel. Pogue v. Diabetes
Treatment Centers of America, Inc., 474 F. Supp. 2d
75 (D.D.C. 2007). .
Although Judge Lamberth’s opinion is well
considered, I remain of the view I previously ex-
pressed. This view is in line with the greater weight
of authority that follows the approach established by
United States ex rel. Thistlethwaite v. Dowty Wood-
ville Polymer, Lid., 6 F. Supp. 2d 263 (S.D.N.Y. 1998)
and United States ex rel. El Amin v. George Washing-
ton University, 26 F. Supp 2d 162 (D.D.C. 1998).
Judge Lamberth’s opinion in Pogue _ resuscitates
United States ex rel. Colunga v. Hercules, Inc., 1998
U.S. Dist. LEXIS 21811, NO. 89-cv-954B (D. Utah
Mar. 6, 1998, a decision that was buried by the Tenth
Circuit in United States ex rel. Sikkenga v. Regence
Bluecross Blueshield of Utah, 472 F. 3d 702 (10th Cir.
2006)). Furthermore, I find that the Thistlethwaite/El
Amin approach is consistent both with the language
of § 3731(b\(2) and, unlike the Pogue/Colunga ap-
proach, the section’s legislative history.
As for the statutory language, it is truc, as Judge
Lamberth points out, that section 3731(b)(2) is not
expressly limited to cases which are brought by the
Government or in which the Government chooses to
intervene. However, I continue to believe (as I stated
in my December 19, 2005 letter ruling), that the
App. 32
reference in § 3731(b)(2) to the knowledge or imputed
knowledge of an “official of the United States” is
sufficient to demonstrate that when _ enacting
§3731(b)(2), Congress contemplated that the section
applies only in such suits. After all, it is only where
the Government itself is actively pursuing the litiga-
tion that the knowledge or imputed knowledge of a
Government official may fairly be said to be material
to the issue of whether an extended limitations period
should apply. The Senate report on the 1986 False
Claims Act amendment, which added §§(b)(2) to
§3731, confirms that this is what Congress envi-
sioned. The report expressly stated that the purpose
of the new section was to “permit the Government to
bring an action within” the extended limitations
period. S.Rep No. 345, 99th Cong., 2d Asses., 15 (July
28, 2986), reprinted in 1986 U.S.C.C.A.N. 5266.
In Pogue Judge Lamberth observed that the
Thistlethwaite/El Amin approach enables the Gov-
ernment to determine what limitations period applies
by deciding whether or not to intervene in the rela-
tor’s action. 474 F. Supp. 2d at 88. Judge Lamberth
went on to express a concern that this would be a
“vexing scenario.” /d. I do not share this concern. The
Pogue/Colunga approach would enable a relator to
benefit from a ten-year limitations period if he or she
decided not to advise the Government of a potential
False Claims Act claim until seven years after it
arises. As a general proposition, a ten-year statute of
limitations for private litigants is quite exceptional;
the six-year limitations period set forth in §3731(b\(1)
App. 33
is much more in accordance with the norm of Ameri-
can jurisprudence. With this premise in mind, it is
reasonable, rather than “vexing,” to construe section
3731(b)(2) as authorizing the Government to deter-
mine the applicable limitations period when deciding
whether or not to intervene in a relator action. After
all, the Government is the victim of a False Claims
Act violation. Moreover, in its sovereign capacity,
when making its intervention decision, the Govern-
ment can appropriately determine whether the
important policy interest in providing repose to a
putative wrongdoer is outweighed by other factors,
such as the flagrancy of the alleged misconduct or the
amount of loss to the public fisc.
I am entering herewith a separate order granting
defendant’s motion for summary judgment as to count
I.
Despite the informal nature of this letter, it
should be flagged as an opinion and docketed as an
order.
Very truly yours,
/s/
J. Frederick Motz
United States District Judge
App. 34
2007 WL 80922 (D.Md.)
United States District Court,
D. Maryland.
UNITED STATES of America, ex rel.
Thornton G. SANDERS
v.
NORTH AMERICAN BUS INDUSTRIES, INC., et al.
Civil No. JFM-02-3084.
Jan. 3, 2007.
Joseph A. Black, Daniel Eric Cohen, The Cullen
Law Firm PLLC, Mark Scott London, London and
Mead, Washington, DC, for Thornton G. Sanders.
Mark I. Bailen, Melissa H. Maxman, Baker and
Hostetler, Washington, DC, Andrew Jay Graham,
James P. Ulwick, Kramon and Graham, PA, Balti-
more, MD, for North American Bus Industries, Inc.
ORDER
J. FREDERICK MOTZ, United States District
Judge.
For the reasons stated in the accompanying
memorandum to counsel, it is, this 3rd day of Janu-
ary 2007.
ORDERED
1. Plaintiff’s motion for summary judgment is
denied;
App. 35
2. Defendant’s motion for summary judgment is
granted in part and denied in part;
3. Defendant’s motion is denied as to count I
relating to the 121 buses that were sold to Miami
Metro Dade, Maryland MTA, and WMATA;
4. Defendant’s motion is granted as to counts II
and III and judgment is entered in favor of defendant
against plaintiff as to those counts; and
4. Defendant’s motion is denied as to count IV.
Memo To Counsel Re: United States of America,
ex rel. Thornton G. Sanders v. North American Bus
Industries, Inc.
Dear Counsel:
As I indicated at the conclusion of the hearing
held on December 8, 2006, my schedule unfortunately
does not permit me to write an extensive opinion.
Instead, I am issuing this memorandum opinion,
stating my rulings and the reasons for them. I hope
you understand that the form of my opinion does not
reflect that I have not taken your arguments seri-
ously.’
‘ On December 20, 2006, counsel for the United States
wrote a letter requesting that I delay my decision until February
1, 2007, in order to give the United States an opportunity to
reconsider its decision not to intervene in this action. The
United States’ request is denied. This action has been pending
since 2002, and the United States has twice been invited to
intervene and has twice declined to do so. The United States
(Continued on following page)
App. 36
Defendant’s motion for summary judgment will
be granted in part and denied in part. Plaintiff’s
motion for summary judgment will be denied.
5. Count I
Plaintiff’s “Buy America” claims asserted in
count I are based upon the contention that NABI’s
payments to NABI Hungary for Engineering and
Technology (“E & T”) services were provided “in sham
contracts designed to disguise the true purpose of
these payments, i.e., to enable NABI to qualify for the
federal subsidy and to shift taxable income to the
parent company in Hungary.” (Relator Sanders’ Mem.
of Law in Supp. of Cross Mot. for Partial Summ. J. as
to Liability on Counts I, II, III, & IV of his Second
Am. Compl. and Sanders’ Opp’n to Def.’s Mot. for
Summ. J. at 28 [hereinafter Pl.’s Mot. for Summ. J.]).’
I am satisfied that genuine issues of fact exist as to
received copies of all the electronic filings in this case, including
the memoranda submitted in connection with parties’ cross-
motions for summary judgment. While the motions were pend-
ing, the United States madc no effort to intervene, and it chose
not to attend the hearing held on December 8, 2006. Under
these circumstances, the time has come for this court to rule
without hearing from the United States.
* Plaintiff now limits his Buy American claims to a total of
121 buses that were soid to Miami Metro Dade, Maryland MTA,
and WMATA. Plaintiff thereby acknowledges that even if the
cost of the E & T services were added to the buses sold to other
entities, the requirement under the Buy America Act that 60%
or more of the component value of the buses be of United States
origin would have been met.
App. 37
whether the services for which the payments were
made were fictitious. Accordingly, both parties’ sum-
mary judgment motions as to count I are denied.
I also understand that plaintiff is abandoning
his claims that (1) defendant made a false
statement with respect to the CompoBus
body, and (2) defendant made a false state-
ment with regard to the articulated joint as-
sembly.
However, as defendant argues, there is no evi-
dence in the record that any other company would
have sold the buses for any less tiian defendant
charged or that the purchasers did not receive the
buses for which they contracted. Therefore, under
Harrison v. Westinghouse Savannah River Co., 352
F.3d 908, 923 (4th Cir.2003), plaintiff has no claim for
actual damages. On the other hand, Harrison also
makes clear that the incurring of actual damages is
not a requirement for a claim under the False Claims
Act. Jd. at 75 n. 7. If a false statement caused the
United States to pay out money, a False Claims Act
claim will lie even if the United States did not suffer
actual damages. Under those circumstances, the
defendant would be liable only for the civil penalties
imposed by the Act, see 31 U.S.C. § 3729(a).
Il. Counts II and III
The gravamen of plaintiff’s claims in counts II
and III is that defendant obtained a refund of cus-
toms duties and, after the refund was obtained,
App. 38
avoided further customs duties by falsely stating that
certain component parts were permanently installed
on the frames of the buses being imported from
Hungary. Defendant contends, inter alia, that any
misstatements concerning alleged permanent instal-
lation were immaterial because even if the compo-
nents had not been permanently installed, the
imported items would have been classified as “unfin-
ished buses” (that were free from customs duties)
rather than “bus shells” (to which a 4% customs duty
applied).”
Plaintiff argues that the very fact that false
statements were made demonstrates that they were
material. The obvious conceptual fallacy in this
argument is that it necessarily conflates the element
of materiality with the elements of inaccuracy and
scienter. If plaintiff’s argument were accepted, the
very fact that false statements were knowingly made
would mean that they were material despite the well
established law that falsity, scienter, and materiality
are separate elements of a False Claims Act claim.
See Harrison v. Westinghouse Savannah River Co.,
352 F.3d at 913. Plaintiff further argues, however,
that Harrison supports his position because it holds
that the element of materiality requires only that the
alleged false statements have “a natural tendency to
’ Defendant also argues that plaintiff's proof of scienter is
insufficient to withstand defendant’s summary judgment
motion. | need not reach that issue because | find that the
alleged misstatements were not materia!
App. 39
influence or [are] capable of influencing the govern-
ment’s funding decision[.]” Jd. at 917. According to
plaintiff, the critical issue is “whether the [alleged]
false statements could have affected [the] Customs
decision.” (Pl.’s Mot. for Summ. J. at 19). Even accept-
ing this formulation as accurate, I would find that the
Customs decision could not have been affected by the
alleged false statements relating to permanent instal-
lation because the decision would have been the same
whether or not the components had been perma-
nently installed. I note, however, that in my judgment
a more precise formulation of the proper inquiry is
whether, even in the absence of permanently installed
components, Customs still would have classified the
NABI imports as unfinished buses rather than bus
shells.
The summary judgment record makes clear that
the answer to this inquiry is “yes.” Under a 1993
Customs ruling concerning the classification of trolley
yus shells being imported into the United States from
Canada, (cited by Damon B. Pike, the customs broker
who submitted the protest letter for NABI), the
critical question is whether imported items had “the
essential character of public transport vehicles” at the
time they were imported. Customs Priv. Ltr. Rul. N.Y.
802788 (Feb. 24, 1993). This depends upon whether
the shell had been shaped into the form of a public
transportation vehicle and whether important com-
ponents were present at the time of importation.
Plaintiff acknowledges that this is the appropriate
inquiry: “(flor classification purposes, it does not
App. 40
matter if any of the components were permanently
installed. A bus that is imported with all of its com-
ponents, but completely disassembled, would still be
classified as a bus.” (Pl.’s Mot. for Summ. J. at 14.)
Moreover, it is undisputed that the imported frames
were in the shape of buses, and the evidence in the
summary judgment record makes clear that impor-
tant component parts were present when the frames
were imported. Plaintiff’s own industry expert,
Richard Cooper, who was NABI’s vice president of
engineering at the time the protest letter was writ-
ten, supports this assessment in his declaration and
deposition testimony. (Cooper Decl. { 10, Ex. E of Pl.’s
Mot. for Summ. J.; Cooper Dep. 118:15-119:18, Ex. 6
of D.’s Mot. for Summ. J.))’
* Defendant has presented the testimony of Stuart P. Seidel,
who previously served as “an attorney, supervisory attorney, and
Senior Executive with the United States Customs Service” and
who has 37 years of experience in customs and international
trade, to support its position that the alleged false statements
were immaterial. (Seidel Dep. at 1, Ex. 2 of Def.’s Mot. for Sum.
J.) Plaintiff challenges the qualifications of Mr. Seidel, arguing
that because he “is qualified as a Customs legal expert and not
as an industry expert, he should have no role in assisting this or
any Court in determining the common or commercial meaning
[of] the terms of the tariff schedule.”(Pl.’s Mot. for Summ. J. at
20). I find this argument unpersuasive. However, even if Mr.
Seidel’s testimony is disregarded, for the reasons I have stated,
the summary judgment record is clear that the alleged false
statements were not material.
App. 41
Ill. Count IV
In count [V plaintiff claims that by declaring only
the contract prices and not the allegedly fictitious
cost for E & T services, defendant underpaid Customs
duties. This claim is unavailing as to the buses that
were the subject of defendant’s successful protest to
Customs and to buses imported thereafter because
“unfinished buses” are not subject to any Customs
duty regardless of their price. Plaintiff asserts in his
reply brief, however, that “the ruling on the protest
only provided duty-free treatment for entries of bus
shells with the date of April 12, 1997 or later. NABI is
required to pay duties on all bus shells before that
date.” (Pl.’s Rep. Mem. in Supp. of Pl.’s Cross Mot. for
Summ. J. at 13). Defendant has not responded to this
argument in writing, and the record is unclear as to
what buses (if any) were imported prior to April 12,
1997, or whether other issues are presented as to any
such buses. Under the circumstances, I will deny
defendant’s motion for summary judgment as to count
IV but permit defendant to file another summary
judgment motion as to that count if it chooses to do
sO.
Despite the informal nature of this letter, it
should be flagged as an opinion and docketed as an
order.
App. 42
UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND
CHAMBERS OF 101 WEST LOMBARD STREET
J. FREDERICK MOTZ BALTIMORE, MARYLAND 21201
UNITED STATES (410) 962-0782
DISTRICT JUDGE (410) 962-2698 FAx
December 19, 2005
Memo To Counsel Re: U.S. ex rel. Thornton G.
Sanders v. North American
Bus Industries, Inc.
Civil No. JFM-02-3084
Dear Counsel:
Although I went into the hearing last Friday
expecting to give a brief oral opinion after considering
your oral arguments, by the conclusion of the hearing
plaintiffs arguments had sufficiently unsettled my
thinking that I was not comfortable with ruling
without further reflection. I have now decided, how-
ever, that the tentative opinions I expressed at the
beginning of the hearing were correct. Therefore, in
order to prevent unnecessary further delay in this
litigation [ am prepared to rule without requiring the
additional briefing I requested.
As to the service issue, plaintiff may well be
correct that it has proffered (and could prove) a
good faith effort to effect service on NABI Rt. by
serving process on Andras Racz, the chief executive
officer of NABI, Rt., when he was in Alabama. I
nevertheless am of the view that service under
Maryland Rule 2-121(c) would be inappropriate. I
App. 43
have always understood that rule to be one of last
resort, to be used only when all other means to effect
service have been futile. Here, another means to
effect service expressly contemplated by Fed. R. Civ.
P. 4(f)(1) remains available to plaintiff. While I recog-
nize that requiring service under the Hague Conven-
tion wili further delay these proceedings, such delay
is required by the Convention itself. Moreover, from
the perspective of the efficient administration of
justice, the delay that will occur is outweighed by the
fact that were I to order service under Maryland Rule
2-121(c), I would be making a ruling which, if re-
versed on appeal, would be entirely disruptive of the
litigation process.
As to the limitations issue raised by Deloitte &
Touche, I continue to hold (or perhaps, more accu-
rately, have reverted to) the tentative view I ex-
pressed at the outset of the hearing that the
Thistlethwaite or ElAmin approach to interpreting 31
U.S.C. $3731 is correct. See United States ex rel.
Thistlethwaite v. Dowty Woodville Polymer, Lid., 6
F. Supp. 2d 263, 265 (S.D.N.Y. 1998); United States ex
rel. Kl Amin v. George Washington Univ., 26
F. Supp. 2d 162, 172-73 (D.D.C. 1998). I believe that
courts have properly rejected the holding in United
States ex rel. Colunga v. Hercules, Inc., No. 89-CV-
954, 1998 W.L. 310481 (D. Utah Mar. 6, 1998), be-
cause the approach taken by the Colunga court
might, in a given case, undermine the public policy of
encouraging prompt disclosure of fraud by relators to
the government. See United States ex rel. Downy v.
App. 44
Corning, Inc., 118 F. Supp. 2d 1160, 1170 (D.N.M.
2000). Likewise, I find the approach taken in United
States ex rel. Hyatt v. Northrop Corp., 91 F. 3d 1211,
1214-18 (9th. Cir. 1996), to be unacceptable because
that approach requires that the phrase “official of the
United States” be construed as including private
citizens. To me, such a construction violates common
sense.
The Thistlethwaite/ElAmin approach, on _ the
other hand, is fully consistent with sound public
policy and does little (if any) violence to the statutory
language. I recognize that section 3731(b) begins with
the words “[a] civil action,” drawing no distinction
between actions in which the government intervenes
and those in which it does not. Thus, there can be no
question that the primary limitations period estab-
lished by section 3731(b)(1) applies to all actions,
regardless of whether the government intervenes.
However, in my view it is entirely reasonable to infer
that the distinction is a necessary one in considering
the extended limitations period provided by section
3731(b)(2) because the knowledge or imputed knowl-
edge of an “official of the United States” is material
only in actions in which the government chooses to
intervene. Thus interpreted, the statute makes
perfect sense, requiring false claims actions to be
brought within six years, whether or not the govern-
ment intervenes, but providing an extended period of
up to ten years if an official of the United States
learns of the alleged fraud for the first time more
than three years after the fraud occurred.
App. 45
In light of my rulings, the briefing schedule I set
at the conclusion of the hearing is rescinded as moot,
and the time is ripe to hold a scheduling conference.
The conference will be held at 10:00 a.m. on January
20, 2006.
Please bring your calendar with you to the con-
ference. If any of you would prefer to hold the confer-
ence by conference call, please call my chambers to
make the necessary arrangements.
The conference will be held in my chambers
located in Room 510 on the fiftn floor of the Court-
house.
Despite the informal nature of this letter, it
should be flagged as am opinion and docketed as an
order.
Very truly yours,
/s/
J. Frederick Motz
United States District Judge
App. 46
UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND
CHAMBERS OF 101 WEST LOMBARD STREET
J. FREDERICK MOTZ BALTIMORE, MARYLAND 21201
UNITED STATES (410) 962-0782
DISTRICT JUDGE (410) 962-2698 FAX
March 7, 2005
Memo To Counsel Re: U.S. ex rel. Thornton G.
Sanders v. North American
Bus Industries, Inc.
Civil No. JFM-02-3084
Dear Counsel:
I have reviewed the memoranda submitted in
connection with defendant’s motion to dismiss. The
motion is denied without prejudice to defendant
rearguing the issues it has raised by way of a motion
for summary judgment at the conclusion of discovery.
Briefly stated, the reasons for my ruling are as
follows:
1. It appears to me that the claim asserted in
count II is a traditional FCA claim rather than a
“reverse FCA claim.” Defendant allegedly made false
statements in order to induce the government to pay
a claim for refund of customs duties. As to defendant’s
contention that the imposition of a customs duty
requires the exercise of discretion by customs offi-
cials, I am not persuaded by the present briefing that
this is so insofar as regular import duties are con-
cerned.
App. 47
2. Counts III and IV do assert “reverse FCA
claims.” I am persuaded, however, that the claims are
the equivalent of an action debt at common law and
are therefore maintainable. See Am. Textile Mfrs.
Inst., Inc. v. The Limited, Inc., 190 F.3d 729, 736 (6th
Cir. 1999). I recognize that when defendant made the
allegedly false statements upon which count III is
based, the defendant did not then “owe [] to the
government an obligation sufficiently certain to give
rise to an action of debt at common law.” Jd. However,
plaintiff alleges that defendant reaffirmed these false
statements by certifying that the buses were properly
classified at the time each subsequent shipment was
imported into the United States. This appears to be
sufficient for the purpose of establishing a reverse
FCA claim.
It appears to me that plaintiff did far more than
make generalized allegations of mischarging and that
his conduct was “protected activity” sufficient to give
rise to an action for wrongful termination. Compare
Zahodnick v. IBM, 135 F.3d 911 (4th Cir. 1997).
However, any wrongful termination claim might well
be time barred. As you know, the Supreme Court has
granted certiorari in Wilson v. Graham County Soil &
Water Conservation District, 367 F.3d 245 (4th Cir.
2004), cert granted, 125 S.Ct. 823 (Jan. 7, 2005), to
answer the question “whether the six year limitation
period set out in 31 U.S.C. §3731(b) should be applied
to retaliatory discharge actions under the False
Claims Act or whether courts should apply the most
closely analogous state limitation period.” If the
App. 48
Supreme Court holds that the state limitation period
is applicable, plaintiff’s retaliatory discharge claim
certainly is time-barred since the most closely analo-
gous Maryland limitations period is thee years.
Moreover, it is not clear that plaintiff’s claim is timely
even if the limitations period set forth in 31 U.S.C.
§3731(b) applies, since that claim, which was not
added until the amended complaint was filed, relates
back to the filing of the original complaint. All of this
said, I am not persuaded that permitting the retalia-
tory discharge claim to proceed will substantially
broaden the scope of discovery, and I do not want this
litigation delayed pending the Supreme Court’s
decision in Wilson.
4. I am fully satisfied that plaintiff’s allega-
tions are sufficient to meet the particularity require-
ments of Fed. R. Civ. P. 9(b).
Despite the informal nature of this ruling, it
shall constitute an Order of Court, and the Clerk is
directed to docket it accordingly.
Very truly yours,
/s/
J. Frederick Motz
United States District Judge
App. 49
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1773
(1:02-cv-03084-JFM)
UNITED STATES OF AMERICA, ex rel.
Thornton G. Sanders
Plaintiff-Appellant
v.
NORTH AMERICAN BUS INDUSTRIES,
INCORPORATED; DELOITTE & TOUCHE USA,
LLP; NORTH AMERICAN BUS INDUSTRIES KFT.
Defendants-Appellees
and
NORTH AMERICAN BUS INDUSTRIES,
RT.; AMERICAN IKARUS; PETER Z. RONA;
THE FIRST HUNGARY FUND
Defendants
App. 50
TAXPAYERS AGAINST FRAUD EDUCATION FUND
Amicus Supporting Appellant
(Filed Jan. 7, 2009)
The petition for rehearing en banc was circulated
to the full Court. No poll was requested. The Court
denies the petition for rehearing en banc.
For the Court
/s/ Patricia S. Conner, Clerk
App. 51
TITLE 31. MONEY AND FINANCE
SUBTITLE III. FINANCIAL MANAGEMENT
CHAPTER 37. CLAIMS
SUBCHAPTER III. CLAIMS AGAINST
THE UNITED STATES GOVERNMENT
§ 3729. False claims
(a) Liability for certain acts. Any person who —
(1) knowingly presents, or causes to be presented, to
an officer or employee of the United States Govern-
ment or a member of the Armed Forces of the United
States a false or fraudulent claim for payment or
approval;
(2) knowingly makes, uses, or causes to be made or
used, a Iaise record or statement to get a false or
fraudulent claim paid or approved by the Govern-
ment;
(3) conspires to defraud the Government by getting
a false or fraudulent claim allowed or paid;
(4) has possession, custody, or control of property or
money used, or to be used, by the Government and,
intending to defraud the Government or willfully to
conceal the property, delivers, or causes to be deliv-
ered, less property than the amount for which the
person receives a certificate or receipt;
(5) authorized to make or deliver a document certi-
fying receipt of property used, or tv be used, by the
Government and, intending to def-aud the Govern-
ment, makes or delivers the receipt without completely
knowing that the information on the receipt is true;
App. 52
(6) knowingly buys, or receives as a pledge of an
obligation or debt, public property from an officer or
employee of the Government, or a member of the
Armed Forces, who lawfully may not sell or pledge
the property; or
(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, is liable to the United
States Government for a civil penalty of not less than
$5,000 and not more than $10,000, plus 3 times the
amount of damages which the Government sustains
because of the act of that person, except that if the
court finds that —
(A) the person committing the violation of this
subsection furnished officials of the United States
responsible for investigating false claims violations
with all information known to such person about the
violation within 30 days after the date on which the
defendant first obtained the information;
x * 1K
(b) Knowing and knowingly defined. For purposes of
this section, the terms “knowing” and “knowingly”
mean that a person, with respect to information —
(1) has actual knowledge of the information;
(2) acts in deliberate ignorance of the truth or
falsity of the information; or
App. 53
(3) acts in reckless disregard of the truth or falsity
of the information, and no proof of specific intent to
defraud is required.
* * *
§ 3730. Civil actions for false claims
(a) Responsibilities of the Atiorney General. The
Attorney General diligently shall investigate a viola-
tion under section 3729. If the Attorney General finds
that a person has violated or is violating section 3729,
the Attorney General may bring a civil action under
this section against the person.
(b) Actions by private persons.
(1) A person may bring a civil action for a violation
of section 3729 for the person and for the United
States Government. The action shall be brought in
the name of the Government. The action may be
dismissed only if the court and the Attorney General
give written consent to the dismissal and their rea-
sons for consenting.
* > *K
§ 3731. False claims procedure
(a) A subpoena requiring the attendance of a wit-
ness at a trial or hearing conducted under section
3730 of this title [31 USCS § 3730] may be served at
any place in the United States.
App. 54
(b) A civil action under section 3730 may not be
brought —
(1) more than 6 years after the date on which the
violation of section 3729 is committed, or
(2) more than 3 years after the date when facts
material to the right of action are known or reasona-
bly should have been known by the official of the
United States charged with responsibility to act in
the circumstances, but in no event more than 10
years after the date on which the violation is commit-
ted, whichever occurs last.
(c) In any action brought under section 3730, the
United States shall be required to prove all essential
elements of the cause of action, including damages,
by a preponderance of the evidence.
(d) Notwithstanding any other provision of law, the
Federal Rules of Criminal Procedure, or the Federal
Rules of Evidence, a final judgment rendered in favor
of the United States in any criminal proceeding
charging fraud or false statements, whether upon a
verdict after trial cr upon a plea of guilty or nolo
contendere, shall estop the defendant from denying
the essential elements of the offense in any action
which involves the same transaction as in the crimi-
nal proceeding and which is brought under subsection
(a) or (b) of section 3730.
App. 55
§ 3732. False claims jurisdiction
(a) Actions under section 3730. Any action under
section 3730 may be brought in any judicial district in
which the defendant or, in the case of multiple defen-
dants, any one defendant can be found, resides,
transacts business, or in which any act proscribed by
section 3729 occurred. A summons as required by the
Federal Rules of Civil Procedure shall be issued by
the appropriate district court and served at any place
within or outside the United States.
(b) Claims under state law. The district courts shall
have jurisdiction over any action brought under the
laws of any State for the recovery of funds paid by a
State or local government if the action arises from the
same transaction or occurrence as an action brought
under section 3730.
App. 56
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
APPLICATION AND AFFIDAVIT
FOR SEARCH WARRANT
(Filed Jul. 31, 2008)
CASE NUMBER: MAG 08 133
In the Matter of the Search of
THE PREMISES KNOWN AND DESCRIBED AS:
NORTH AMERICAN BUS INDUSTRIES
(NABD),
106 NATIONAL DRIVE, ANNISTON,
ALABAMA 36207
I Special Agent Cari Arn being duly sworn depose
and say:
I am a Senior Special Agent with the Department
of Homeland Security, Immigration and Customs
Enforcement (ICE), and have reason to believe that
on the premises known as
NORTH AMERICAN BUS INDUSTRIES
(NABI),
106 NATIONAL DRIVE, ANNISTON,
ALABAMA 36207
FURTHER AND MORE PARTICULARLY
DESCRIBED IN ATTACHMENT A, IN-
CORPORATED BY REFERENCE AS
THOUGH FULLY SET OUT HEREIN,
located in the Northern District of Alabama, there is
now concealed certain property, namely:
App. 57
See ATTACHMENT B - ITEMS TO BE
SEIZED
which is evidence of crimes, in violation of Title 18,
United States Code, Sections 541, 542, 545, and 1001.
The facts to support the issuance of a Search Warrant
are as follows:
See ATTACHMENT C - AFFIDAVIT
Continued on the attached sheet and made a part
hereof. YES
/s/ Cari Arn
Signature of Affiant
Sworn to before me, and subscribed in my presence,
at 9:00 a.m. Birmingham, Alabama, this the 31 day of
July, 2008.
ROBERT R. ARMSTRONG, JR.
United States Magistrate Judge
Name and Title of Judicial Officer
/s/ R. R. Armstrong
Signature of Judicial Officer
Attachment A
Description of Property and Location
NABI, Inc.’s headquarters and manufacturing f[acili-
ties are located at 106 National Dr, Anniston, AL. The
facilities are located on approximately 35 acre site,
with two points of ingress/egress, a Main (West) Gate
App. 58
and East Gate both with security guard identification
check points.
The facilities include two bus assembly plants, and a
research and development center. The office buildings
include the executive offices, accounting, purchasing,
shipping and receiving, quality assurance and (docu-
ment) archives. There are numerous outbuildings
associated with the production plants to include
maintenance department, engineering department,
partial production, proto type section and seat stor-
age.
[Picture Omitted In Printing]
Attachment B
Items to be seized
All documents pertaining to the purchase of, payment
for and sale of imported merchandise, including, but
not limited to:
a. Purchase Orders
b. Contracts
c. Seller’s confirmation and any revision
thereto
d. Copies of all pertinent negotiable in-
struments
e. Invoices
f. Delivery Contracts
ag
Engineering and Technology Contracts
App. 59
h. Bank statements
i. Inventory records
j. Photographs
k. Letters of Credit
1. Wire transfers
m. All pertinent
Correspondence
Facsimile
Electronic transmittal
Records of conversation
Records and documents reflecting information regard-
ing additional costs or expenses incurred in the
transactions including:
a. Packing lists
b. Commissions paid
c. Assists
d. Proceeds that accrue to the seller
Copies of all original documents pertaining to the
shipment, transportation and sale of buses, bus
shells, bus parts and components into the United
States, including but not limited to:
a. Entry documents
b. Invoices
ec. Bills of Lading
App. 60
d. Packing lists
e. Photographs
f. Specifications
g. Correspondence
h. Electronic transmittals
Descriptive or illustrative literature explaining:
a. what the merchandise is
b. where the merchandise is used
c. how the merehandise is used
d. specifications
Accounting records, journals, and/or financial state-
ments pertaining to the merchandise, including, but
not limited to:
a. General Ledgers
b. Case disbursement journals
ec. Purchase journals
d. Accounts receivable ledgers
e. Accounts payable ledgers
f. Cancelled checks
g. Cash receipts journals
App. 61
Records of the intended final purchaser of the goods
imported
sales contracts
purchase orders
ce. delivery contracts
d. engineering and technology contracts
Any and all corporate records including but not
limited to:
Articles of Incorporation
Corporate binders and minutes
Stock binders and stock certificates
Corporate officers and affiliated compa-
nies
Any electronic storage media, including but not
limited to microfiche computer disks, tapes and
software, equipment hard drives, tapes, tape drives,
printouts, optical storage or CD read/write disks, and
any computer peripherals which are used to facilitate
the importation, sale, distribution, transportation,
ordering and purchasing of buses, bus shells, bus
components which are evidence of violation of Title
18, United States Code, Sections 541, 542, 545, 1001
and 1343.
App. 62
ATTACHMENT C
AFF: DAVIT IN SUPPORT OF A
SEARCH WARRANT FOR
THE PREMISES KNOWN AND DESCRIBED AS:
NORTH AMERICAN BUS INDUSTRIES (NABI),
106 NATIONAL DRIVE, ANNISTON,
ALABAMA 36207'
Personally appeared before me Cari Arn, Senior
Special Agent, Department of Homeland Security,
Immigration and Customs Enforcement, who being
first duly sworn, deposes and states as follows:
I am a Senior Special Agent of the Department of
Homeland Security, Immigration and Customs En-
forcement (ICE) (formerly the Department of Treas-
ury, United States Customs Service, Office of
Investigations). I have been employed in this capacity
since September of 1986. I am currently assigned as
the Resident Agent in Charge (RAC) of the ICE office
in Birmingham, Alabama, which is responsible for
investigating violations of federal laws, including
those relating to the importation of merchandise for
entry into the commerce of the United States. As part
of my employment with ICE, I received investigations
training from the Federal Law Enforcement Training
Center (FLETC) and in-service training related to
fraudulent international trade practices.
‘ NORTH AMERICAN BUS INDUSTRIES (NABI) is owned
by CEREBUS [sic] Capital Management Group
App. 63
ICE Special Agents have statutory authority and
are charged with the responsibility to investigate
violations of laws pertaining to the entry of merchan-
dise into the United States. This particular investiga-
tion is related to allegations of violations of Title 18,
United States Code, Section 541; Title 18, United
States Code, Section 542; Title 18, United States
Code, Section 545; and Title 18, United States Code,
Section 1001. In part, Title 18, United States Code,
Section 541 prohibits the entry of any merchandise by
false classification or by payment of less than duty
legally due. Section 542 prohibits the entry of mer-
chandise by means of false statements. Section 545
prohibits the introduction of merchandise into the
United States by passing or attempting to pass a
false document through the customhouse and Title
18, United States Code, Section 1001 false state-
ments.
The information contained in this affidavit is
based on facts from my own, personal observations,
importation documentation, as well as information
from other sources, interviews and other law en-
forcement agents.
This affidavit is in support of a warrant to search
the premises of North American Bus Industries
(NABI), 106 National Drive, Anniston, Alabama
36207. As noted herein, NABI is owned by Cerebus
[sic].
App. 64
Background:
NABI is a manufacturer and importer of com-
mercial transportation buses sold to governmental
municipalities. The foreign manufacturer called
NABI Hungary produces the bus shell, which is
shipped from Hungary, through Germany and im-
ported into the Unites States at the Port of Charles-
ton, South Carolina. The bus shell is trucked to NABI
USA assembly plant in Anniston, Alabama. The
procedure of initial assembling in Hungary and final
assembly in the Unites States is conducted in order
for governmental municipalities to comply with the
federally funded Buy American Program. The Federal
Transportation Administration provides funding to
governmental municipalities to secure public trans-
portation. The Buy America program requires that no
more than forty percent of the final product shall be
produced by any foreign manufacturers.
Harmonized Tariff Schedule:
The initial bus shell is produced in Hungary and
then imported into the United States for final assem-
bly. In accordance with Harmonized Tariff Schedule
(HTS), a complete bus has a HTS 8702.10.3000 at the
two percent tariff duty rate, while a bus shell uses
HTS 8707.90.5040 at a four percent duty rate.
NABI Requests Customs Ruling:
In an effort to file entries at the lower tariff
schedule, in June 1998, NABI requested a US Cus-
toms Headquarters Binding Ruling concerning their
App. 65
importations of buses into the United States from
Hungary. NABI argued under HTS General Rulings
of Interpretation (GRIs) 2(a), which states in perti-
nent part, that: Any reference in a heading to an
article shall be taken to include a reference to that
article incomplete or unfinished, provided that, as
presented, the incomplete or unfinished article has
the “essential character” of the complete or finished
article. NABI provided supporting documentation
that the bus shells, when imported, contain a sub-
stantial amount of equipment and number of compo-
nents necessary for the “essential character” of a
completed transit bus.
Favorable Ruling Issued:
As a result of the information and documentation
provided by NABI, United States Customs Service
Headquarters issued favorable ruling #962065 to
NABI in November 1998. The ruling concluded that if
the articles consist of forty and sixty foot transit bus
shells which, upon importation, have the following
components permanently installed: base structure,
body, axles, front suspension, rear suspension, rims,
wheels, power steering, brake chamber, fuel tank,
engine cradle (including the frame for installation of
the engine and the fan shroud which are bolted on),
flooring, partial door system including door panels,
windshield, outside body trim (including the rain
gutters and rub rail), corrosion protection paint,
steering wheel, tracking for interior lights, air duct
system and destination sign door with enclosure, then
they should be classified as a complete bus under
App. 66
HTS subheading 8702.10.3000, at the lower duty rate
of 2% ad valorem.
The Customs and Border Protection (CBP) Importa-
tion Procedure:
When merchandise arrives from abroad to be
imported into the United States, the importer, or a
licensed Customhouse broker acting for the importer,
is ordinarily required to make a formal entry of the
goods through United States Customs. Documents
ordinarily submitted to U.S. Customs for formal
entries of merchandise from Hungary are (1) Customs
Form 7501, Consumption Entry; (2) a commercial
invoice issued by the foreign seller or manufacturer
including the value; and (3) a declaration of the
country of origin as a minimum. In cases where a
binding ruling has been issued, the ruling is to be
attached to the entry documentation.
Entry BTC-00604370:
On October 24, 2006, Donald O. Montgomery
Customhouse Broker, dba Carrie International
Freight Services, 215 East Bay St., Suite 201-L,
Charleston, SC 29401 filed entry BTC-00604370 on
behalf of NABI. CBP, Import Specialist (I/S) Team
423 conducted an examination of the entry on Octo-
ber 31, 2006, to verify NABI was in compliance with
the headquarters ruling. The entry, which had been
filed as “Completed Buses” under HTS 8702.10.3000
at 2% duty rate, was examined and determined to be
missing the suspension system, power steering, brake
and braking components, fuel tank, and air duct
App. 67
system, all of which is required by the ruling. CBP
sent NABI a Customs Form 29, Notice of Action
where the entry was “Rate Advanced”, which changed
the classification from HTS 8702.10.3000, at 2% duty
rate to HTS 8707.90.5040, at the 4% duty rate. A
subsequent review of additional entries revealed
NABI had imported BUS SHELLS, which were also
missing some of the required components.
Entry BTC-0060519-5:
On January 23, 2007, VS Team 423 conducted
another examination of NABI entry BTC-0060519-5,
dated 12/30/2006 and discovered them to be BUS
SHELLS rather than “Completed Buses”, because the
required components were not installed. As a result of
the inspection, a CBP form 29, Notice of Action, was
generated to Rate Advance and collect the loss of
revenue. Additional entries were identified and Rate
Advanced also.
Protest 1601-07-100269:
On July 11, 2007, Customhouse Broker Donald
Montgomery, dba Carrie International Freight Ser-
vices, filed protest 1601-07-100269 on behalf of NABI.
The protest referenced entry BTC-0060519-5, dated
12/30/2006, which had been Rate Advanced due to a
change in the HTS from Complete’ Buses
8702.10.3000 at 2% duty rate to the Higher Bus
Shells HTS 8707.90.5040, 4% duty rate. After a
Protest is filed, the CBP Office of Rules and Regula-
tions (ORR) has the responsibility to conduct further
review of actions taken by the District Ports. An
App. 68
importer or Customhouse broker can file a protest
and request a review for classification issues, among
other topics.
Entry BTC-0060969-2:
On October 29, 2007, VS Team 423, SSA Terry
Moore, SSA Bill Wooten and SSA Dante Garrido
examined buses imported under entry BTC-0060969-
2. The examination concluded that the axles were a
used component, as identified by the rust, dents,
corrosion, etc. The suspension system had only a
single shock absorber and a used dummy spacer,
preventing the use of the single shock. The spacer
was used to prevent the bus shel] sitting on top of the
bus frame, preventing them from damage during
transit. There were no springs, coils, air bag, air
tanks or plumbing for the suspension system. There
were no fuel tanks, no power steering components, no
brakes or braking components, and no air ducting
system present on any of the examined buses. Other
components were in question as to the specifications
required in the ruling. Photographs were taken of the
buses.
CARTA Examination:
On October 30, 2007, the bus shells were exam-
ined by representatives of the Charleston Area Re-
gional Transportation Authority (CARTA), who have
specific industry knowledge of commercial buses. Mr.
David Bonner is the Director of Maintenance for
CARTA, with 20 years of experience in the commercial
bus field. Mr. Patrick Cartin is the Parts Manager for
App. 69
CARTA with 7 years of experience in the field. After
examination of entry BTC-0060969-2, both Mr. Bon-
ner and Mr. Cartin agreed that the buses did not
have the required components listed within the
Customs ruling.
Mr. Richard Cooper’s review of photographs:
On November 12, 2007, Mr. Richard Cooper, who
was the Vice President of Engineering from April
1996 to May 2004 examined the photographs taken
on October 29, 2007 of the buses imported under
entry BTC-0060969-2. As a former Chief Engineer of
NABI, Mr. Cooper advised that the suspension is an
“air” suspension on all buses, thus were non-existent
on the bus. Only a single shock absorber was in place;
however, it was made inoperable due to the dummy
spacer installed. The dummy spacer is used to fill the
empty space where a suspension air bag would be in
placed. The spacer is required; otherwise the frame
would rest on the chassis, making movement during
transportation difficult and causing damage to the
frame. The blue tube is a shock made inoperable
because of the spacer. The spacer is recycled after use
and returned to Hungary.
[Pictures Omitted In Printing]
Mr. Cooper indicated that the buses had a dummy
axles and steering arms installed. The dummy axles
are shipped to Hungary where they are then in-
stalled. The dummy axles are used to facilitate the
buses to be transported by Roll On-Roll Off (Ro-Ro)
vessels. As seen in the below photographs, the axles
App. 70
and steering arm are rusted and dented, as the axles
are recycled.
[Pictures Omitted In Printing]
Mr. Cooper indicated that below photos are of the
Mechanical Steering gear and drag line for the man-
ual non-power steering system.
[Pictures Omitted In Printing]
The below photographs are of the clamshell area,
which is the framing for the rooftop where the com-
pressed natural gas (CNG) tanks would be installed.
The CNG tanks would sit on the “T” brackets, but the
tanks are missing.
[Pictures Omitted In Printing]
Interview with Mr. Tony Sanders:
On February 11, 2008, an interview was con-
ducted with Mr. Tony Sanders, who was employed in
1993 as the Vice President and Chief Financial Offi-
cer, and subsequently became the Chief Executive
Officer of NABI USA until he was terminated in
1997. While in that position, Mr. Sanders discovered
that NABI Hungary was paid by two contracts for
each bus. The first contract is the Delivery Contract,
which is the value of the bus shell which must meet
the Buy America requirement. This is the contract
used for the value of the Customs importation. The
second contract is the Engineering and Technology
(E&T) Contract to cover the cost of the bus shells in
excess of the forty percent Buy America requirement.
App. 71
NABI Hungary would purposefully calculate the
maximum cost of the bus shell, to keep it under the
forty percent foreign component cost. NABI USA
would make separate payments to NABI Hungary to
cover the delivery contract and the E&T contract
costs. Engineering and Technology costs are consid-
ered “assists in the production” of the imported item
and are subject to US Customs Duty. The E&T pay-
ments should have been disclosed as part of the
imported cost of the bus shell. Mr. Sanders estimates
the cost of the E&T payments, was approximately
$3.8 million dollars, which equates to $153,528 loss of
dutiable revenue. More importantly the added cost of
the E&T payments would have increased the foreign
costs over the 40 percent limit of the Buy American
program.
Interview with Mr. Chris Finley:
On February 11, 2008, an interview was con-
ducted with Mr. Chris Finley, 115 Timberlea Drive,
Warner Robins, GA 31088. Mr. Finley was employed
by NABI from March 1989 until March 2003. In his
last position at NABI he was the Director of Quality
Assurance (QA) and part of his duties included the
inspection every bus shell imported by NABI from its
parent company in Hungary. When questioned re-
garding his knowledge of the condition of NABI’s bus
shell imported from Hungary, specifically, about the
components listed Customs ruling HQ 962065, Mr.
Finley, indicated many bus shells were received
without the required components present or the
components were incomplete in accordance with the
App. 72
requirements set forth in the US Customs ruling. Mr.
Finley added that as part of his duties, the QA de-
partment would photograph each specific imported
bus, and those photographs, along with the necessary
paperwork, were maintained in the NABI QA de-
partment. Mr. Finley reviewed photographs taking
during an examination of entry BTC-00609692 on
October 29, 2007. Mr. Finley concurred with Mr.
Cooper that the suspension system had only a single
shock absorber and a used dummy spacer, which
prevented the use of the single shock. There were no
springs, coils, air bag, air tanks or plumbing for the
suspension system. The spacer was used to prevent
the bus shell sitting on top of the bus frame during
transit. Mr. Finley reported that NABI used only
American made fuel tanks or fuel cells in their buses.
That included buses which were designed to use
Liquid Natural Gas (LNG), Compressed Natural Gas
(CNG) or diesel fuel.
Interview of Ms. Lisa Gardner:
On May 14, 2008, an interview was conducted
with Ms. Lisa Gardner, a former NABI employee. Ms.
Gardner had been employed as Corporate Secretary
and Treasurer and was terminated on November 29,
2007. Her termination included a severance package
and a non-compete clause; thus she was presented
with a Customs Summons to provide testimony and
produce relevant documents, with which she com-
plied. Ms Gardner explained that the E&T payments
were made to NABI, Hungary for the engineering
services they provided. Normally there were two
App. 73
contracts paid for each bus, the delivery contract and
the E&T contract. The E&T payment varied between
three to ten thousand dollars per bus. Ms. Gardner
reported that Donald Montgomery, Carrie Interna-
tional Customhouse broker in Charleston, SC, was
the broker for NABI. The import documents were
always provided by NABI, Hungary directly to Carrie
International. The bills and invoices from Carrie
International were paid by Ms. Gardner for NABI,
USA. Ms. Gardner indicated that NABI would “micro-
fiche” original business documents and maintained
them in the Archives building at the NABI plant.
After the documents became “Microfiche”, the original
documents were destroyed. The documentation and
photographs pertaining to the condition of the bus
shell upon receipt at the Anniston plant, which is
generated by the QA department, are maintained in
the QA department located in the Plant One building
of NABI. Documentation which includes purchase
order or sales contracts, are maintained in the Pur-
chasing offices located in Plant 3. Correspondence
documentation such as Articles of Incorporation,
corporate internal memorandum are maintained in
the Executives Offices, also located in Plant 3.
Ms. Gardner was aware that original Customs docu-
mentation must be maintained for five years after
importation according to Customs regulations. Docu-
mentation pertaining to Importations is maintained
in the records of the accounting office within Plant
3, or if the records are older than five years the
documentation wouid be microfiche or scanned and
App. 74
maintained in the Archives building, located on the
NABI facility.
Interview of Mr. Richard Cooper:
On May 15, 2008, Mr. Richard Cooper was inter-
viewed. Mr. Cooper was employed by North American
Bus Industries, Inc. (NABI) in Anniston, AL from
June 1995 through May 2004. He held the position of
Vice President of Engineering from October 1995 to
May 2004. As Vice President of Engineering, his
principal function was to manage NABI’s Engineering
Department, perform product and industrial engi-
neering related to NABI’s final assembly of transit
buses. He explained that when the bus shells im-
ported from NABI, Hungary they were bare bus
bodies that consisted of a steel shell (including side
and roof panels) with a front windshield and all
exterior access doors. The bus shell was painted with
a corrosion resistant primer coat. In addition, the bus
shell was imported with a rough plywood floor and a
diesel fuel tank, if it was a diesel bus. The bus shells
were the same for all contracts with NABI customers.
When NABI purchased Ikarus it came with the
purchase of the design license, blueprints, engineer-
ing plans, etc and right to build these standard high-
floor models. Ikarus, was the Hungarian company
from whom NABI, Hungary and NABI USA evolved.
At no time during Mr. Cooper’s employment did
NABI, Hungary ever make or provide any original
basic drawings, designs, schematics, blueprints, and
bill of maternals for the final assembly of buses in
Alabama. The original documents were re-used during
App. 75
the production, thus continual Hungarian engineering
and technology services were not necessary, as they
claimed. They did not provide significant engineering
and technology services in connection with any final
assembly to warrant additional payments from NABI
USA. Mr. Cooper was questioned about some of the
specific components listed in the Custom ruling
962065 and the physical status of NABi’s imported
bus shells. The steering system is limited mechanical
steering only, not power steering. The suspension
system is not present as it is an air suspension sys-
tem. The fuel tanks are not present if it is LNG or
CNG system. The axles, wheels and tires were not
the final product installed and sold to the customer,
thus the majority of imported buses cannot pass the
specifications outlined in the Customs ruling.
Examination of seven bus shells:
On July 14, 2008, SSA Terry Moore and SSA
Dante Garrido examined seven bus shells which had
been entered by Donald O. Montgomery Customhouse
Broker, Carrie International Freight Services, on
behalf of NABI. The entries involved were BTC-
0061310-8, BTC-0061309-0; BTC-0061260-5 and
BTC-0061262-1. The bus shells which were missing
the suspension system, power steering, brake and
braking components, fuel tank, air duct system, and
flooring, all of which is required by the ruling. The
rims appeared to be new on all bus shells, while the
tires were old and used on five of the seven buses
shells, whiie two had new tires. The two with the new
tires, also had bi-fold doors and a clamshell roof
App. 76
which indicates the bus to be produced as a LNG or a
CNG bus.
Based upon the information developed in this
investigation, it is believed that NABI has provided
false statements in its supporting protest, which were
material to the Customs classification decision to
grant their favorable ruling. NABI supplied the
specific components or product which were to be
included on the bus shell according to the ruling. The
ruling allowed NABI to import bus shells as finished
buses under HTS 8702.10.3000, at the lower duty
rate of 2% ad valorem. The false statements supplied
in its protest were material to Customs classification
decision to allow NABI’s imported bus shells as
finished buses under HTS 8702.10.3000. The false
statements are a violation of Title 18 USC 1001
which caused, influenced and supported the importa-
tions to be entered in violation of Title 18 USC 541,
Entry of goods falsely classified; Title 18, United
States Code, section 542, Entry of goods by means of
false statements; and Tile 18, United States Code,
Section 545, Passing of false invoices through the
Customhouse. Examinations of the imported product
established a continual import practice by NABI
which abused the factual description and the intent of
the issued binding ruling.
Based on information provided to me, it is my
understanding that as a normal course of business,
businesses such as NABI keep and maintain docu-
ments and records related to the: manufacture, pur-
chase, transportation, importation, and sales of
App. 77
merchandise, as well as supplier documentation with
the businesses with which they are involved. I also
understand that such businesses tend to keep and
maintain these documents and records on their
business premises.
Interviews conducted with Ms. Gardner and Mr.
Finley identified specific documentation which sup-
ports the continual criminal violations of Title 18,
United States Code, Sections 541, 542, 545 and 1001
and has been maintained in various media formats
such as paper, microfiche or scanned into a digital
media and are stored at NABI, Anniston facility in
Quality Assurance, Accounting, Purchasing, Archives
departments and the Executive offices.
In accordance with Title 19, United States Code,
Section 1508, Recordkeeping any importer who
imports merchandise into, the customs territory of
the United States, shall make, keep, and render for
examination and inspection any records which per-
tain to any such activity, or to the information con-
tained in,.the records and are normally kept in the
ordinary course of business. Retention of records is to
be maintained for a five year period, however; inter-
views established NABI maintains records longer
then the five year requirement.
Based upon the facts stated herein, I submit that
probable cause exists to enter the business premises
known and described as North American Bus Indus-
tries (NABI), 106 National Drive, Anniston, Alabama
36207, and to search for and seize any and all
App. 78
such records and documents, including computer-
maintained records and documents, related to the
manufacture, importation, transportation, purchase,
and sale of buses and/or bus components as described
in this affidavit. A more complete description of the
items to be seized and the manner in which computer
records are to be searched and seized is attached
hereto as “ATTACHMENT B.”
In consideration of the foregoing, I respectfully
request that this Court issue a search warrant for
North American Bus Industries (NABI), 106 Nationa!
Drive, Anniston, Alabama 36207 authorizing the
seizure of items described in Attachment B and
incorporated by reference as if fully set forth herein.
Your affiant requests authority to seize such material.
/s/ Cari Arn
Cari Arn, Senior Special Agent
United States Departmer t of
Homeland Security
Immigration and Customs
Enforcement
Subscribed and sworn to before me this 31 day of
July, 2008.
/s/ Robert R. Armstrong, Jr.
ROBERT R. ARMSTRONG, JR.
United States Magistrate Judge
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