Opinion
Case No. C2-97-776.
November 13, 1997
OPINION AND ORDER
This case was filed by the American Textile Manufacturers Institute, which, according to the complaint, is the national trade association of the domestic textile industry. The defendants are a number of corporations and individuals whose business includes importing manufactured textile goods, i.e. clothing. Relator complains that the defendants either arranged for or knew about the fact that certain lots of imported clothing were incorrectly marked — that is, that the labels and import documents said they were manufactured in Hong Kong or Macau instead of the People's Republic of China, where they were really made. Relator asserts that when defendants submitted inaccurate "entry documents" to United States Customs officials during the importation process, defendants incurred liability to the United States under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq. Relator is pursuing its claim under the qui tam provisions of that statute, 31 U.S.C. § 3730(b), which allow a private individual to pursue the government's claims under the FCA and to share in any recovery.
The government elected not to intervene and proceed with the action and so notified the Court pursuant to 31 U.S.C. § 3730 (b) (4) (B).
Relator filed its complaint in the United States District Court for the Central District of California, and the case was transferred to this Court at defendants' request. While that request was under advisement in California, defendants moved to dismiss the complaint. After the case arrived here, the parties were given an opportunity to supplement their briefing on the motions to dismiss in order to focus more precisely on Sixth Circuit, rather than Ninth Circuit, precedent. The issues raised by defendants' motions to dismiss the complaint have been exhaustively briefed. Additionally, although defendants had originally requested oral argument, they withdrew that request in a letter to the Court dated September 4, 1997. For the following reasons, the Court concludes that the complaint fails to state a claim under the False Claims Act and must therefore be dismissed under Fed.R.Civ.P. 12 (b) (6).
I.
When considering a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), a court must construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded material allegations in the complaint as true. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1983). When determining the sufficiency of a complaint in the face of a motion to dismiss, the court must apply the principle that "a complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). See also, McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232 (1980); Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir. 1983), cert. denied, 469 U.S. 826 (1984).
A motion to dismiss under Rule 12 (b) (6) is directed solely to the complaint itself. Roth Steel Products, 705 F.2d at 155. Consequently, the Court must focus on whether the claimant is entitled to offer evidence to support the claims, rather than whether the plaintiff will ultimately prevail. Scheuer, 416 U.S. at 236. A federal court cannot consider extrinsic evidence in determining whether a complaint states a claim upon which relief can be granted. Roth Steel Products, 705 F.2d at 155. The Court will grant a defendant's motion to dismiss under Fed.R.Civ.P. 12 (b) (6) if the complaint is without merit because of an absence of law to support a claim of the type made, or of facts sufficient to make a valid claim, or if on the face of the complaint there is an insurmountable bar to relief indicating that the plaintiff does not have a claim. See generally Rauch v. Day Night Mfg. Corp., 576 F.2d 697, 702 (6th Cir. 1978).
II.
The First Amended Complaint filed on March 21, 1997 is lengthy and detailed. Rather than repeat all of relator's factual assertions, the Court will simply summarize the crucial allegations of the complaint in order to provide a framework for the legal discussion which follows.
This case apparently arose out of an investigation conducted by relator into the garment manufacturing practices of the defendants or their overseas affiliates, particularly those located in the People's Republic of China, Hong Kong, and Macau. Although somewhat more detail is necessary to understand the legal issues posed by the motions to dismiss, it is fair to state that the general matter about which relator complains is the manufacture of garments in the People's Republic of China and the "trans-shipment" of those garments to Hong Kong or Macau where labels were attached to the garments indicating that they were manufactured in one of those two locations. Once, as relator alleges, the garments were improperly marked concerning their country of origin, they were imported into the United States through the use of documents stating that they had been manufactured in either Hong Kong or Macau. The primary purpose of this scheme, according to relator, was to avoid quotas placed on the importation of garments from the People's Republic of China. If the goods had been properly marked, they would have been refused by Customs officials because the quota for importing goods manufactured in the People's Republic of China would have been exceeded.
Describing one of several instances set forth in the complaint will illustrate this point. According to relator, one of the major suppliers of garments to the Limited and its subsidiaries, many of which are defendants in this action, is Gaddy Garment Factory, located in Hong Kong. During most of 1995, Gaddy had agreed to produce in excess of 30,000 garments per month for the Limited defendants. Relator initiated surveillance at Gaddy's Hong Kong facility, and was unable to observe any substantial manufacturing occurring there. Given the volume of garments which Gaddy was obligated to produce, relator contends that at least 80 people had to be involved in the manufacturing process, but Gaddy's Hong Kong operation was simply not that large. Rather, relator contends that Gaddy had subsidiaries located in the Guangdong Province in China which manufactured the garments and shipped them to Hong Kong in cartons with the words "Made in Hong Kong" printed on them. Then, when the garments were imported into the United States, importation documents were prepared stating that the garments had been manufactured in Hong Kong rather than in China. Gaddy is only one of a number of foreign garment makers which allegedly engaged in the same type of activity either at the direct request of, or with the knowledge of, one or more of the defendants.
According to the complaint, when garments are imported into this country, a group of documents known as "entry documents" must be executed. They include, according to paragraph 142 of the complaint, a "Customs Form 7501," commercial invoices, declarations required by 19 C.F.R. § 12.130(f), and other documents. These documents are required to identify the "country of origin" of the imported goods because, among other reasons, there are quotas on the amount of goods that can be imported from certain foreign countries, including the People's Republic of China. According to relator, in 1995 and 1996 the defendants filed literally thousands of entry documents falsely representing that manufactured textile goods originated in either Hong Kong or Macau when, in fact, the actual country of origin was the People's Republic of China.
19 C.F.R. § 12.130 (f), a regulation of the United States Customs Service, Department of the Treasury, requires that all importations of certain textiles and textile products be accompanied by appropriate declarations set forth in the regulation regarding the country of origin of the articles.
The complaint asserts that this type of improper importation and labeling violates six different statutory or regulatory schemes. In order to understand relator's theory of FCA liability, it is important to understand the way these six sets of statutes and regulations operate. Therefore, the Court will describe each one in some detail.
Count One invokes 18 U.S.C. § 545. That statute, which is part of the criminal code, is entitled "Smuggling Goods into the United States," and provides that anyone who "makes out or passes, or attempts to pass, through the customhouse any false . . . or fraudulent invoice, or other document or paper," or who "brings into the United States, any merchandise contrary to law" or who "receives . . . or in any manner facilitates the transportation . . . or sale of such merchandise after importation" is subject to a fine and a jail term of up to five years. Section 545 also provides that any merchandise unlawfully smuggled into the United States, or the value of that merchandise, is to be forfeited to the United States by the person responsible for the smuggling.
There is no private civil remedy available under 18 U.S.C. § 545. Central to Count One and all other counts of the complaint is relator's assertion that, by importing the improperly marked goods and using the false documents to do so, defendants were able to conceal from the United States the existence of a monetary liability — in this case, the fines and forfeitures that the United States could have assessed under § 545. In other words, had defendants not falsified the entry documents for the improperly-labeled garments, the United States would have learned of the unlawful importation of the garments, because it is a violation of the customs laws to import a garment which bears an incorrect designation of the country of origin. At that point, the government would have been entitled, under § 545, to assess a monetary penalty against the defendants equal to the value of the imported merchandise. It is relator's position that such an assessment is an "obligation" to the United States which defendants "concealed" by way of false statements, and, according to relator, defendants thereby violated 31 U.S.C. § 3729 (a) (7), a subsection of the False Claims Act which allegedly forbids such concealment.
Count Two is conceptually no different from Count One, other than its reliance on a different statutory section as the "predicate offense" of the False Claims Act claim. 19 U.S.C. § 1595a provides for forfeitures and other penalties for violating specified sections of the Tariff Act of 1930. Among other things, it allows the seizure and forfeiture of any means by which an article is imported into the United States contrary to law, and it also provides for monetary penalties equal to the value of the article or articles introduced against anyone who "directs, assists financially or otherwise, or is in any way concerned in any unlawful activity" described in § 1595a(a), i.e. the unlawful importation of articles into the United States. 19 U.S.C. § 1595a (c) also permits the merchandise to be seized and forfeited, although if the importing violation deals only with the classification or value of merchandise and not its admissibility into the country, no seizure can occur except as permitted by 19 U.S.C. § 1592. Again, relator claims that defendants violated the FCA by using false import documents to conceal an alleged monetary liability under this statute.
19 U.S.C. § 1592 is the basis for Count Three of the complaint. That provision of the Tariff Act of 1930, which is entitled "Penalties for Fraud, Gross Negligence and Negligence," prohibits the introduction of merchandise into the United States by means of "any document . . . or information, written or oral statement, or act which is material and false. . . ." When the Customs Service reasonably believes that such a false statement has been made in connection with the importation of merchandise, it is authorized to issue a notice of intention to issue a claim for a monetary penalty and, after certain procedures are followed, if it finds a violation, it can assess a range of penalties depending upon whether the violation found was fraudulent, grossly negligent, or simply negligent. Seizures of merchandise are also authorized under specific circumstances by 19 U.S.C. § 1592(c)(6). These are all monetary penalties that defendants allegedly concealed from the United States through the use of false entry documents.
19 U.S.C. § 1623 and 19 C.F.R. Part 113 are the statutory and regulatory bases for Count Four. 19 U.S.C. § 1623, also part of the Tariff Act of 1930, allows the Secretary of the Treasury or the Customs Service to require that bond be posted in connection with the importation of merchandise. Relator alleges that bonds were filed by the defendants for all of their garment importations, and that under these bonds defendants are required,inter alia, to "make or complete an entry to enable Customs to determine whether the applicable requirements of law and regulation are met." (Complaint, ¶ 176). Regulations found in 19 C.F.R. Part 113 require individuals or organizations who have posted such a bond to return improperly marked merchandise to the Customs Service once it is learned that the marking is improper. Relator alleges that the defendants violated the terms of their bonds, and that if it had not been for the false entry documents, the United States could have assessed monetary penalties, including liquidated damages equal to the value of the merchandise. See 19 C.F.R. § 113.62, which states, inter alia, that the obligors on a bond agree to pay liquidated damages equal to the value of the merchandise for committing specified bond violations.
In Count Five, relator identifies 19 U.S.C. § 1304 as yet another source of duties allegedly violated by the defendants. 19 U.S.C. § 1304, also part of the Tariff Act of 1930, provides that every article of foreign origin imported in the United States must be marked in a way that will permit the ultimate purchaser of the article in the United States to identify the article's country of origin. If the article is not so marked, the government is entitled to collect an additional ten percent ad valorem duty. As in the other counts, relator alleges that by concealing the improper marking of the imported garments, defendants were also able to conceal the existence of facts that would cause the United States to impose this duty.
Finally, Count Six asserts that the defendants' unlawful importation of misbranded articles into the United States violates both the Federal Trade Commission Act, 15 U.S.C. § 45(1), and the Textile Fiber Products Identification Act, 15 U.S.C. § 70A(a). These acts provide for civil penalties of up to $10,000 per violation. In a manner similar to that alleged in Counts One through Five, relator contends that by concealing these statutory violations through the use of false entry documents, defendants concealed and avoided their obligation to pay these civil penalties to the United States.
Under the legal standard applicable to motions to dismiss, the Court is required to accept as true relator's allegations concerning the manufacture of garments in the People's Republic of China, followed by the mismarking of these garments as having been manufactured in either Hong Kong or Macau and the importation of the garments through the use of entry documents which state falsely that Hong Kong or Macau were the countries of origin of these garments. Although legal conclusions contained in a complaint need not be accepted at face value, the Court's independent review of the statutes and regulations in question confirms that it is at least possible that the actions described in the complaint violate one or more provisions of federal law which permit the United States to assess a monetary penalty of some type, including a civil or criminal fine.
The primary question raised by the motions to dismiss (although there are others) is whether a person who violates some statute or regulation that subjects that person to a possible monetary fine or forfeiture of property and who then makes a false statement to conceal that offense is liable under the False Claims Act for having concealed the existence of an "obligation" to the government by means of a false statement. Relator contends that this type of conduct is actionable under one subsection of the False Claims Act, 31 U.S.C. § 3729(a) (7).
Defendants argue, as noted infra, that the alleged false statements in the entry documents in the present case would be the basis for creating the potential penalties which relator regards as "obligations" to the government and not statements toconceal any such obligations. Relator contends that liability attached when the improperly labeled merchandise arrived in this country and that the allegedly false entry documents were submitted to conceal liability. The issue framed by the Court views relator's claim in the light most favorable to relator; that is, the Court assumes only for purposes of this decision that the complaint sufficiently alleges both an unlawful act to which monetary penalties may attach, and a separate act of making a false statement in order to conceal the commission of the initial unlawful act.
III. A.
The motions to dismiss filed by the two separate sets of defendants (the "Limited defendants" and the "Tarrant defendants") assert the following. First, all defendants argue that a False Claims Act violation has to involve something more than the failure to comply with some other statute or regulation; that is, "[m]ere regulatory violations do not give rise to a viable FCA action." United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1267 (9th Cir. 1996), cert. denied 117 S.Ct. 958 (1997). Essentially, defendants contend that the same conduct that allegedly violated some other statute or regulation, such as the use of false entry documents or the mismarking of garments, cannot also be the FCA violation; in order to violate the FCA, at a minimum, some independent false statement concealing the underlying statutory or regulatory violation is required.
Even if the Court were to conclude, as relator contends, that making and presenting false entry documents is sufficiently independent of the underlying conduct (the illegal importation of mismarked goods) to constitute a separate false statement that could be actionable under the FCA, defendants also assert that relator's theory of liability is deficient because in order for § 3729(a) (7) to be violated, there must be an "obligation" that is owed to the United States and which is concealed by means of a false statement. Defendants argue that an "obligation" exists only under limited circumstances, such as when there is a clear contractual liability owed to the United States, or when a judgment has been entered on a statutory or common law claim. Because, according to defendants, the "obligations" that arise from the mere violation of a federal statute or regulation are essentially inchoate and largely indeterminate until the United States undertakes some action to enforce the law, such as the actual assessment of a penalty or the imposition of a fine or duty, they do not fall within the purview of § 3729(a) (7).
Defendants make two other arguments as well. First, they assert that the complaint does not plead the allegedly fraudulent conduct with the particularity required by Fed.R.Civ.P. 9(b). Second, the two individual defendants, both of whom are part of the Tarrant group of defendants, argue that the complaint does not set forth any facts that would make them individually liable for the alleged misdeeds of their corporate employers. Because the Court concludes, for the reasons that follow, that the complaint fails to state a claim for relief under the FCA, it is not necessary to address these two issues.
B.
Because this case involves an issue of statutory interpretation, the Court begins its discussion with the words of the statute. 31 U.S.C. § 3729(a) (7) reads as follows:
"(a) Liability for certain acts. — Any person who —
(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 three times the amount of damages which the Government sustains because of the act of that person. . . ."
Although § 3729(a) (7), like the other subsections of Section 3729(a), provides for recovery only by the United States government, 31 U.S.C. § 3730(b) permits private persons to file civil actions for violations of § 3729, and § 3730(d) permits a private person to receive a reasonable amount of compensation for collecting the civil penalty and damages owing to the United States, which is to be not less than 25% and not more than 30% of the proceeds of the action plus an award for expenses necessarily incurred, including attorneys' fees. Relator has proceeded under these statutory provisions, and, at least for the moment, there is no dispute about its standing to prosecute the claim. Rather, the focus of the pending motions to dismiss is whether there is a claim to be prosecuted. In order to answer that question, the Court must explore in some depth the text, history, and purpose of § 3729 (a) (7).
The "civil penalty" referred to in § 3730(d) clearly refers to the civil penalty described in § 3729(a), and not a civil penalty that might potentially be assessed under other statutes such as the ones involved in this case.
As originally enacted, the False Claims Act did not contain any provision making persons liable for attempting to avoid or conceal an obligation to pay or transmit money to the government. Rather,
"The False Claims Act was adopted in 1863 and signed into law by President Abraham Lincoln in order to combat rampant fraud in civil war defense contracts. Originally the act provided for both civil and criminal penalties assessed against one who is found to knowingly have submitted a false claim to the Government."
Senate Report No. 99-345, False Claims Amendment Act of 1986,reprinted at 1986 U.S. Code Congressional and Administrative News, 5266, 5273; see also United States ex rel. Hopper v. Anton, 91 F.3d at 1265-66 ("The FCA was enacted during the Civil War with the purpose of forfending widespread fraud by government contractors who were submitting inflated invoices and shipping faulty goods to the government.").
Under that formulation, which persisted until certain amendments were adopted in 1986, a prerequisite for the filing of a civil action to recover penalties and damages under the False Claims Act was that the defendant had submitted some type of affirmative claim for payment to the government. Although prior to 1986 a few court decisions had allowed so-called "reverse false claim" actions to be brought, see e.g., Smith v. United States, 287 F.2d 299 (5th Cir. 1961) and United States v. Douglas, 626 F.Supp. 621 (E.D. Va. 1985), other courts had concluded that the type of fraud which did not produce an overpayment of funds from the government, but rather resulted in an underpayment of funds to the government, was not covered by the False Claims Act because no "claim for payment" was being presented. See, e.g., United States v. American Heart Research Foundation, 996 F.2d 7, 10 (1st Cir. 1993) (refusing to apply the pre-1986 version of the False Claims Act to an alleged fraudulent request for reduced postal rates, noting that "the Supreme Court has thrice affirmed [the] natural reading [of the word `claim'] and emphasized that a `claim' in this context refers to one for money or property. . . ."). Although the legislative history of the 1986 amendments suggests that the legislators who adopted those amendments favored a more expansive reading of the False Claims Act as it existed prior to 1986, it is also clear that the primary reason for the enactment of § 3729(a) (7) was precisely to codify the principle that a "reverse false claim" was actionable.
A "reverse false claim" refers generally to a false statement made to conceal, avoid or decrease an obligation to pay money to the government, as contrasted with a false statement made to obtain money from the government.
The key word used by Congress when it adopted § 3729(a) (7) to address the "reverse false claim" issue is the word "obligation." Under § 3729(a) (7), it is only fraudulent acts taken to conceal or avoid an "obligation" owed to the government which are actionable. The parties have devoted a significant portion of their briefs to a discussion of what the word "obligation" means. In the Court's view, "obligation" is one of those words whose meaning can vary depending upon the context within which it is used. It is not clear, either from the remaining language used in § 3729(a) (7) or the language of the False Claims Act as a whole, exactly what sense of the word Congress intended. Strictly construed, an "obligation" can refer only to a pre-existing right to payment based upon clear contractual language or arising from a judgment rendered by a court of law. More loosely construed, it can refer to any set of circumstances under which the government could conceivably make a demand for payment by the alleged obligor, regardless of the legal basis for that demand Because the language of the statute does not really address the breadth of the meaning to be given to this key term, the Court believes that a resort to both legislative history and the decisional landscape is necessary in order to ascertain the most likely sense in which Congress intended the word "obligation," as it is used in § 3729 (a) (7), to be interpreted.
The Court has already discussed some of the relevant legislative history. It seems clear that Congress had identified a specific problem in the decisional law relating to "reverse false claims" and wanted to address that problem through section (a) (7). The two cases which the Senate Report cites with approval, United States v. Douglas and Smith v. United States, involved situations where a party had a contractual obligation to the United States and, through false reporting, sought to reduce the amount of money which it was otherwise obligated to pay. The cases criticized in the Senate Report, in which the courts refused to recognize a "reverse false claim" as actionable, involved similar factual scenarios, such as where contract or lease arrangements had been entered into with the United States. The Report also refers to cases holding that the filing of a fraudulent federal tax return in order to reduce or avoid the payment of income tax, would, but for the statutory exemption for tax claims, be the type of "reverse false claim" which would be addressed by the amendment. Tax cases were the only illustration given of cases where the obligation to pay money to the United States arose by virtue of the operation of a statute or regulation as opposed to some voluntary arrangement under which the defendant agreed to pay money to the United States. The legislative history is completely silent on the question of whether new subsection (a)(7) was intended to reach situations involving a possible obligation to pay the government fines or other penalties that could be imposed for a violation of some specific statute or regulation, as contrasted with the Internal Revenue Code which itself imposes a present, ongoing obligation on all citizens to pay the government tax money due the government, without regard to any possible obligation to pay fines or other penalties as a result of a failure to pay required taxes.
There are few judicial decisions which directly or indirectly address this issue. Defendants rely heavily on United States ex rel. S. Prawer Co. v. Verrill Dana, 946 F.Supp. 87 (D. Me. 1996), a case which supports defendants' view that the word "obligation" was intended to have a very narrow meaning. Prawer held that the word "obligation" refers only to a "legal obligation," which, in turn, requires that there be a specific contract in place creating the obligation, an acknowledgment of indebtedness by the defendant, or a money judgment rendered in the government's favor. Relator, on the other hand, points to decisions such as Pickens v. Kanawha River Towing, 916 F.Supp. 702 (S.D. Ohio 1996) (Spiegel, J.), which hold that the creation of a document such as a ship's log which contains a false statement that the vessel's owner has not discharged pollutants — an act which could bring about the imposition of monetary penalties — is actionable under the False Claims Act if the document is reviewed by the government. A similar result was reached by Judge Weber in United States ex rel. Stevens v. McGinnis, No. C-1-93-442 (S.D. Ohio Oct. 26, 1994), 1994 WL 799421 (unreported).
Interestingly, although the Prawer case, on the one hand, and the Pickens and McGinnis cases, on the other hand, reach diametrically opposite conclusions, they do so based upon the same legislative history. In Prawer, the court traced the use of similar language throughout the history of the False Claims Act, reviewed the language of the legislative history which included the use of the phrase "money owed" to the government, and found a restrictive interpretation of the term "obligation" logical, because otherwise the scope of the remedy created by the 1986 amendments "would seem to be as broad as any lawyer's creative impulses in defining a possible claim. . . ." Prawer, 946 F. Supp. at 94-95 n. 13. Both Pickens and McGinnis appear to assume, without extensive discussion, that the commission of some act such as the discharge of pollutants into a river which might, at some future date, if uncovered by the United States and processed through proper channels, give rise to the imposition of a monetary penalty, immediately created an "obligation" which a false record could then serve to conceal. This was based upon Congress' purported intent in extending the False Claims Act to reach essentially any species of fraud against the government, an intent consistent with the Supreme Court's pronouncement inUnited States v. Neifert-White Co., 390 U.S. 228, 232 (1968) that the False Claims Act "was intended to reach all types of fraud, without qualification, that might result in financial loss to the government." Of the three decisions, only Prawer seems to be concerned with the impact of an interpretation of the False Claims Act which is expansive enough to reach the types of situations dealt with in the McGinnis and Pickens cases, and which is present here.
Although these three decisions appear to be the ones most closely on point, it is helpful to discuss other court decisions as well which have some bearing on the extent to which relator's construction of § 3729(a) (7) is a reasonable one. In particular, the Court finds helpful decisions which deal with the question of whether a party who has undoubtedly submitted a claim for payment, and undoubtedly included some type of false statement within that claim, committed a violation of the False Claims Act even though there did not appear to be a direct relationship between the false statement and either the amount of money to be paid pursuant to the claim or the existence of the obligation to pay money on account of the claim. Several examples will serve to illustrate this point.
Courts have struggled with the concept of imposing liability under the FCA for certain types of false or misleading statements made by a person who has submitted a claim for payment to the United States. If the false statement directly causes a payment to be made, or directly causes a payment to be larger than it otherwise would have been, §§ 3729 (a) (1) and (2) — which proscribe the presentation of a "false or fraudulent payment or claim" and the use of a "false record or statement to get a false or fraudulent claim paid" — are clearly and properly invoked as the basis for FCA liability. In fact, this is the archetypal FCA lawsuit. See, e.g., United States ex rel. Hopper v. Anton, 91 F.3d at 1266 ("The archetypal qui tam FCA action is filed by an insider at a private company who discovers his employer has overcharged under a government contract."). However, it is frequently the case that a false statement or record appears in the documentation for a claim for payment, but plays no part in the government's decision to pay the claim or the decision as to how much to pay. At that point, courts differ as to whether Congress intended to extend the "false claim" provisions of the FCA beyond the archetypal case.
In United States ex rel. Pogue v. American Healthcorp., Inc., 914 F.Supp. 1507 (M.D. Tenn. 1996), the defendants, health care providers, had allegedly referred Medicare and Medicaid patients to another provider in violation of federal anti-kickback and self-referral statutes. They then presented claims to the government for Medicare and Medicaid payments. It appeared that the amount of the claims, and the entitlement to be paid for the services rendered, were not affected by the illegal referral of the patients. However, because the payees were deemed to have implicitly represented, in their claims, that no violations of Medicare or Medicaid statutes or regulations had occurred, thequi tam relator alleged that the claims for payment were "fraudulent claims" within the meaning of the False Claims Act.
The Pogue court discussed extensively competing lines of cases addressing this same scenario, some of which held that the False Claims Act was implicated by the submission of a claim for payment containing a false statement unrelated either to the obligation to pay money or the amount to be paid, and others holding that it was not. The Court also noted that, in contrast to the language quoted in the Senate Report from United States v. Neifert-White Co. concerning the broad reach of the False Claims Act, the Supreme Court had also stated, in United States v. McNinch, 356 U.S. 595, 599 (1958), that the False Claims Act "was not designed to reach every kind of fraud practiced on the government." The Court concluded that although the False Claims Act "was not intended to operate as a stalking horse for enforcement of every statute, rule or regulation" giving rise to some type of monetary claim by the government, it was nonetheless implicated by a defendant who "engaged in . . . fraudulent conduct with the purpose of inducing payment from the government." Id. at 1513. It permitted the claim to go forward only because relator "alleged that the government would not have paid the claim submitted by Defendants if it had been aware of the alleged kickback and self-referral violations" — in other words, that had the government known the truth, it would have withheld payment even though there did not appear to be a direct causal connection between the type of fraud engaged in and the amount being claimed for services. The Court left open the possibility that if the alleged fraudulent conduct "was not committed with the purpose of inducing payment from the government, that conduct does not operate to taint [defendants'] . . . claims and render the claims false or fraudulent under the False Claims Act." Id.
The same issue was discussed by the District Court in United States ex rel. Thompson v. Columbia/HCA Health Care, 938 F.Supp. 399 (S.D. Tex. 1996), rev'd ___ F.3d ___ (5th Cir. October 23, 1997), 1997 WL 619314. The District Court had adopted a more restrictive reading of the False Claims Act, (1) finding that the claim itself had to be false or fraudulent before the FCA was implicated; (2) defining a false or fraudulent claim to be a "claim or a claim amount that the government would not have had to pay but for the fraud"; and (3) concluding that the FCA was not "intended to be used as a private enforcement device for the Medicare anti-kickback statute and Stark laws [relating to self-referral]." Thompson, 938 F. Supp. at 405. The Court of Appeals reversed, but only because it construed the complaint to have alleged that compliance with the anti-kickback and Stark laws was, in fact, a prerequisite to payment. Although the case was remanded for further factual development on that issue, the Court of Appeals reaffirmed its earlier holding in United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 456, 461 (5th Cir. 1977), cert. denied 434 U.S. 1035 (1978) that "[t]he False Claims Act is not an enforcement device for [other federal laws such as] the Anti-Pinkerton Act."
Pogue and Thompson both discussed the Court of Claims' decision in Ab-Tech Constr. v. United States, 31 Fed. Cl. 429 (1994), aff'd 57 F.3d 1084 (Fed. Cir. 1995), a case also cited by the parties here. Ab-Tech involved the submission of payment vouchers which, in the Court's words, "represented an implied certification by Ab-Tech of its continuing adherence to the requirements for participation in" the government program at issue. Had the alleged violations of those requirements been disclosed in the payment certifications, it appeared that the United States would not have paid additional money to Ab-Tech because it would not have been an eligible participant in the program. Because these misrepresentations "caused the government to pay out funds in the mistaken belief that it was furthering the aims of the . . . program," the court concluded that a false claim had been submitted within the meaning of the FCA. Id. at 434. Both Pogue and Ab-Tech appear to be premised on the underlying assumption that, even when the government receives fair value for its money, if the money is paid to a person who, because of some other misfeasance, is not actually entitled to receive it — for example, by being an ineligible participant in the government program — the government has paid out money under circumstances where, absent the fraud, it would not have done so, and the FCA has thereby been violated.
Although the issue in these cases was whether the defendant had submitted a fraudulent claim and thereby incurred liability under sections (a) (1) and (a) (2) of the FCA, under the interpretation of § 3729 (a) (7) urged by relator here, these would have been easy cases. Regardless of whether the false statements submitted as a part of the claim for payment had any impact on the timing or amount of the payment, they would have qualified as "false record[s] or statement[s] to conceal, avoid, or decrease an obligation to pay . . . the Government" — namely the obligation to pay the civil or criminal penalty which attached to the underlying misconduct. Had truthful statements been made — that is, had the defendants in Pogue and Thompson disclosed their violations of the federal anti-kickback and self-referral statutes — the government would have been able to pursue civil and criminal monetary penalties called for by those statutes. These penalties would, according to relator here, be "obligations" that were "concealed" by the claims submitted, and liability under § 3729 (a) (7) would be the obvious result.
The Court is aware, of course, that neither Pogue nor Thompson squarely addresses the issue of whether these kinds of false statements fall within § 3729 (a) (7)'s reach, presumably because the relators in those cases did not advance that argument. The fact that neither the attorneys nor the courts even considered the possibility that section (a) (7) might apply is some indication of the novelty of relator's theory in this case. More significant, however, is the courts' reluctance to extend the FCA to these types of statements even when the usual prerequisite of an FCA suit — the presentation of a claim for payment to the government — was undisputedly present. The concern voiced by even those courts that permit such cases to proceed is that, by doing so, the FCA is being transformed into something it was not intended to be — namely, a vehicle for allowing either the United States or a private citizen to file a suit for money damages whenever someone falsely states to the government that some unlawful act did not occur. At least in the context of sections (a) (1) and (a) (2), the existence of a claim for payment is a limiting factor on the FCA's reach. That is not the case with section (a) (7), which does not depend upon the presentation of a claim for payment. Thus, if Congress intended any limitations at all on the extent to which the FCA captures false statements made to the government when no claim for payment is presented, such limitations may be found either by construing strictly certain statutory language, such as the word "obligation," — the Prawer court position which defendants espouse — or by finding that the language chosen by Congress, even if not strictly limited to a legal obligation owed to the government, was not intended to apply to each and every statement which might conceal from the government the existence of criminal or civil violations to which monetary penalties might attach. The Court makes this latter finding.
One of the concerns expressed by the Thompson court was that, by applying the FCA in situations where at least implicit misrepresentations are made to the government in connection with some claim for payment — even if the misrepresentation does not affect the timing or amount of the payment — the FCA would be turned into a vehicle for private enforcement of the underlying statute or regulation. In the context of the "direct claim" provisions of the FCA, even if a more expansive interpretation of the language in § 3729 (a) (7) were adopted, there would be some limit on the extent to which the FCA became such a vehicle because, in those situations, the party being sued would have submitted some type of claim for payment, thereby limiting the reach of the FCA to statutory violations committed by those who have a relationship with the government that involves both a payment of money from the government to the defendant and some procedure through which the claimant falsely represents to the government that it is in compliance with rules or regulations which are involved in that relationship.
On the other hand, if the "reverse false claims" language is also construed to cover garden variety statutory or regulatory violations, the limiting factor of the existence of a claim for payment would not be present, because the essence of the "reverse false claim" is that the defendant has not presented a claim for payment to the United States. Under the relator's argument, it would be sufficient to impose liability under § 3729 (a) (7) if there has been some type of document found that falsely represents, either explicitly or implicitly, that the person has committed no statutory or regulatory violation which might lead to the imposition of a penalty or fine.
This Court does not believe that Congress, by amending the False Claims Act in 1986, intended to convert that Act into an all-inclusive vehicle for the enforcement of any federal statute or government regulation by either the Department of Justice or by a private citizen whenever it can be found that some false statement has been made regarding conduct subject to monetary sanctions. In this day of pervasive government regulation of both public and private conduct, it is impossible even to estimate the number of times each day, each month, or each year that private citizens create or submit some type of document required by the government or subject to government review or the number of times that such a document, if not completely accurate, could lead to the filing of a False Claims Act case.
The discharge of pollutants scenario addressed in theMcGinnis and Pickens cases is a good example of the potentially limitless reach of the FCA under relator's interpretation. How many industries are required to either file reports or keep logs relating to their compliance with environmental statutes? How many more maintain records which, while not required to be kept, nonetheless may be inspected from time to time by the government, either as part of a routine inspection, or in connection with some completely unrelated matter? Under Pickens and McGinnis, any entry in any business record of any business subject to the environmental laws of the United States which did not accurately report the unlawful discharge of a pollutant, the unlawful transportation of hazardous waste, or some other type of activity which violated the environmental laws, could give rise to the filing of a False Claims Act case.
This is not to say that a violation of the environmental laws or other laws may not be the predicate for a False Claims Act case. In United States ex rel. Fallon v. Accudyne Corporation, 880 F.Supp. 636 (W.D. Wis. 1995), the defendant allegedly made false statements and certifications that it had complied with environmental regulations required by its contract with the government in order to induce payments by the government under its contract. Such conduct may well fall within the prohibition against submitting a false claim under 31 U.S.C. § 3729(a) (1) and (a) (2). Under relator's interpretation in the present case, it would not be necessary to show any contractual relationship with the government or receipt of any payment from the government; a violation of environmental regulations that could result in monetary sanctions, coupled with false records regarding compliance, would alone be sufficient to institute a False Claims Act case under § 3729 (a) (7), an interpretation that is not adopted by this Court.
Of course, the environmental laws are not the only pervasive regulations of the United States which apply to the everyday operation of businesses. For example, most businesses are also subject to the Occupational Safety and Health Act ("OSHA"), 29 U.S.C. §§ 651 et seq. 29 U.S.C. § 654 imposes an obligation on each such employer to maintain a safe work place, and § 657(c) (1) requires those employers to keep records about their compliance with OSHA. These records are subject to inspection both on a routine basis as part of OSHA's compliance monitoring function, and in connection with OSHA inspections or execution of search warrants made in response to a specific safety complaint. 29 U.S.C. § 666 (c) states that any violation of 29 U.S.C. § 655 or any rule or regulation of OSHA can subject violators to fines ranging up to $70,000. Was it Congress' intent that if an employer fails to keep accurate records of its compliance with OSHA, no matter how minor the failures might be, a private party who learns of this failure can bring a qui tam action under the False Claims Act because the failure to comply with OSHA or to keep accurate records may lead to the imposition of a civil penalty? There are, of course, countless other record-keeping requirements found in federal law — for example, those relating to the purchase and sale of firearms, the purchase and sale of narcotic drugs by pharmacists and pharmacy supply houses, the inspection of meat, poultry, and other food items under the Food, Drug and Cosmetic Act — in short, a myriad of laws and regulations which, in one way or another, regulate almost any significant business activity carried on in the United States. Congress and regulatory agencies have set forth specific sanctions for the violations of these laws and regulations, and the False Claims Act, in this Court's view, is not intended to be some super enforcement tool with a private right of action for the imposition of some new and additional penalty.
Another, even more extreme, example may illustrate the Prawer Court's concern that unless some narrowing construction is placed on § 3729(a) (7), it will be as broad as a "lawyer's creative impulses" can make it, see 946 F.Supp. at 94-95 n. 13. 42 U.S.C. § 1983 provides a civil remedy to persons whose constitutional rights are violated by one acting under color of law. Countless thousands of private actions are filed each year under this statute, many of them by state employees complaining about job actions or by state prisoners complaining about actual or perceived abuses. Although § 1983 does not provide for monetary penalties or fines running to the government, that statute has a criminal counterpart, 18 U.S.C. § 242, which permits a fine to be levied against a person acting under color of law who deprives another person of constitutional rights. Other than the fact that § 242 contains a scienter element (willfulness) not present in § 1983, the language of the statutes is very similar — which is not surprising, since the predecessor of § 1983 was one of three statutes which were consolidated into the predecessor of § 242 in 1871. See United States v. Lanier, 73 F.3d 1380, 1385 (6th Cir. 1996) (en banc), rev'd on other grounds 117 S.Ct. 1219 (1997).
Most state employers and state prisons keep records of their employees' conduct, including conduct which can form the basis for a § 1983 lawsuit. It is not unusual to find in these records a denial that any unlawful conduct occurred, or at least the absence of an indication that it did. It is also not unusual for some arm of the federal government, such as the EEOC, for example, or the Department of Justice to review such records. Although such records may not be required to be kept or submitted, under relator's theory, and in accordance with the decision in McGinnis, "[t]he FCA . . . does not require that the false record be one that the defendant is under an obligation by law to maintain." 916 F.Supp. at 708. Taking this argument to its logical conclusion, in any instance where the government has reviewed any record dealing with the conduct about which a plaintiff complains, that § 1983 plaintiff may properly allege that the defendant's "false" records (i.e. any record that does not acknowledge the commission of the underlying § 1983 violation) "concealed" a violation of 18 U.S.C. § 242 from the government, thereby depriving the government of the opportunity to collect a criminal fine, and violating the False Claims Act. Further, so long as the word "willful" is used in the complaint to describe the defendant's underlying conduct, the FCA claim presumably would survive a motion to dismiss. Is it reasonable to conclude that, by adopting § 3729(a) (7), Congress intended that reverse false claims of this nature could be routinely pleaded in § 1983 litigation?
With certain exceptions, the enforcement of all federal statutes affecting civil rights, including those pertaining to elections and voting, public accommodations, public facilities, school desegregation, employment, housing, abortion, sterilization, credit and civil rights of Indians and institutionalized persons is assigned to the Assistant Attorney General, Civil Rights Division, Department of Justice. 28 C.F.R. § 0.50.
The Court believes that the answer to these questions is obvious. So drastic an expansion in the scope of the False Claims Act, through the use of language which strongly implies that there be some type of financial relationship between the defendant and the United States which is subject to being affected by an act of concealment or avoidance, could not reasonably have been intended. The legislative history suggests nothing more than that Congress was concerned that in cases where a pre-existing obligation to the United States exists but is reduced or eliminated through the submission of some type of false statement, the government or a private citizen may redress the injury to the Treasury through the filing of a False Claims Act case.
The language Congress used and the legislative history simply cannot be reconciled with the recognition that literally millions of records are maintained by every business engaged in commerce within the United States; that a failure to maintain accurate records frequently subjects the business to sanctions under specific statutes and regulations; and that innumerable private lawsuits could be filed if the FCA is viewed as a tool to obtain a damage award for improper or inaccurate record keeping that fails to reflect some alleged violation of federal law. If that is what Congress intended, it should have plainly said so.
Yet another reason to doubt Congress' intention to create a private remedy based on the enforcement of an extensive number of statutory or regulatory requirements is the issue of damages. The FCA permits a private plaintiff to recover a percentage of the money otherwise due to the United States. In a case where the obligation which is being concealed arises from a contract or a debt, such as a judgment, calculating the amount of the award is relatively straightforward. In cases where the underlying "obligation" is a fine, penalty, or assessment, things are not as simple. Most statutes and regulations provide for a range of monetary penalties, and give government agencies substantial discretion concerning the amount of the penalty to be assessed. Criminal statutes, such as 18 U.S.C. § 545, allow a sentencing judge to assess a fine within the statutory range, aided by the United States Sentencing Guidelines, when applicable. It is difficult to envision what procedure would be used in an FCA case to determine exactly what amount of money, in the form of penalties or fines, the government would hypothetically be entitled to for violations of statutes or regulations which the government has chosen not to enforce directly against the defendant. Again, both the FCA and the legislative history are completely silent on how this issue might be addressed by a court which adopted the expansive interpretation of § 3729(a)(7) sought by relator.
The Court sees no principled way to distinguish all of the examples given above from the facts of this case. The importation of goods into the United States is yet another example of an ordinary, everyday business activity which, because it is regulated by the United States, is accompanied by record keeping requirements which, unquestionably, can be violated and when violated subject the violator to specific statutory and regulatory sanctions. If the False Claims Act reaches these types of transactions, it also reaches every environmental law violation, OSHA violation, and any other regulatory violation which could be committed by a business, at least where the business keeps some record of that activity which is arguably false and which, at some point in time, is reviewed by the government. It is unnecessary in the present case for the Court to determine the precise contours of the language chosen by Congress to effectuate a "reverse false claims" remedy, and the proper definition of the term "obligation" may well go beyond that contemplated by the Prawer court to include matters other than direct contractual obligations or claims which have been reduced to judgment. It is sufficient in the present case for the Court to find, as it does, that the language of § 3729(a)(7) is not so broad as to encompass every statutory or regulatory violation which might lead the United States to attempt to assess a fine or other type of monetary penalty against the violator.
It might be argued, however, that Count Five of the complaint, which alleges concealment of an obligation (now found in 19 U.S.C. § 1304(h)) to pay an additional ten percent ad valorem duty, stands on a different footing than the other counts. Relator appears to assert that the existence of the ad valorem duty described in this statute does not depend upon a government official's exercise of discretionary authority to levy or to pursue a criminal fine or civil penalty, but rather arises simply by operation of law. Relator further notes that, by the terms of the statute, this duty is "not [to] be construed to be penal" and "shall not be remitted in whole or in part nor shall payment thereof be avoidable for any cause." Thus, relator argues, the mere arrival of mismarked goods on a loading dock in the United States triggered the defendants' obligation to pay this duty, and the filing of false entry documents concealed its existence from the government and gave rise to liability under § 3729(a)(7).
Although Count Five may present a closer question than do the other counts of the Complaint, in the Court's view it fails to state a claim under the False Claims Act.
It should first be noted that this is not a case in which a false statement is made to the Customs Service in order to avoid the payment of a duty which is due and owing to the government as, for example, the marking of goods with a country of origin having a lower duty than the country from which the goods actually originated. In that situation, there is clearly an existing obligation to pay the correct duty and, if not paid, the government has been deprived of duties to which it is entitled. In the present case, defendants note that "the amount of the customs duties owed the United States was not affected by whether China, Macao or Hong Kong was designated as the country of origin," (Defendants' memorandum in support of motion to dismiss, p. 3), and this has not been disputed by relator. Instead, the alleged mismarking of the goods created, at best, a conditional obligation to pay money to the government in the future.
As the Federal Circuit has noted, a culpable mismarking of goods imported into this country can give rise to a violation of two statutes, 19 U.S.C. § 1304(h) and 19 U.S.C. § 1592(d).Pentax Corporation v. Robison, ___ F.3d ___, (Fed. Cir., Sept. 17, 1997), 1997 WL 573492. Section 1304(h) provides that if an article at the time of importation is not properly marked regarding the country of origin and if such article is not exported or destroyed or properly marked after importation, then — and only then — a duty of 10% ad valorem shall be levied, collected and paid. The act of importing such goods does not itself create "an obligation to pay or transmit money or property to the Government," see 31 U.S.C. § 3729(a)(7). Rather, if, after importation, the goods are then exported, destroyed or properly marked, there is no obligation to pay the additional ad valorem duty. Even if not exported, destroyed or properly marked, there is no obligation to pay the additional ad valorem duty until such time as the Customs Service levies the additional duty. Only at that time is there an obligation "to pay or transmit money or property to the Government." False statements in the required customs documents regarding the country of origin are arguably statements made to avoid a potential obligation to pay money to the government if certain events do or do not taken place, i.e. if exportation, destruction or correct marking does not occur and if the levy made by the Customs Service does occur, but it cannot be said that the false statements alone avoid a present obligation to pay money or property to the government. In this sense, the additional ad valorem duty (although not deemed to be penal) is of the same nature as other civil or criminal penalties that potentially can be imposed for the violation of a host of federal statutes. While Congress clearly intended that a reverse false claim is actionable when false statements are made to conceal, avoid or decrease an existing obligation to the government, the expansive, unlimited interpretation urged by relator would create a False Claims Act case whenever it could be shown that a violation of a statute could result in the imposition of some monetary sanction, and it would permit a private citizen to request, and a Court to impose, a monetary penalty above and beyond the specific sanction tailored by Congress to fit that offense.
Relator concedes that Congress' use of the words "conceal" and "decrease" in 31 U.S.C. § 3729(a)(7) can reasonably be construed to refer to present and existing obligations to the government, but contends that inclusion of the word "avoid" should be construed to apply to the possibility of future obligations (Opposition of Relator to Motion to Dismiss, p. 15). An existing obligation, however, could also be "avoided" by a false statement. For example, if a company has a contract to provide property to an agency of the government that excuses performance if certain events occur, and the company falsifies its records to show the occurrence of such an event, it seems to the Court that the company has not made a false statement to "conceal" the contractual obligation to perform the contract or to "decrease" that obligation, but has made the false statement to "avoid" its obligation to perform the contract. The point is that avoidance can be reasonably interpreted to include the avoidance of an existing obligation to the government and not just the avoidance of some potential future obligation. The Court finds no merit in relator's contention that Congress necessarily intended that the word "avoid" include all in futuro, inchoate obligations that conceivably could arise from a violation of some federal statute or regulation.
19 U.S.C. § 1592 is an illustration of the type of statute that Congress has enacted to address the penalties to be imposed for the specific misconduct alleged in this case. It prohibits the importation of any merchandise into the commerce of the United States by means of any false statement and provides for specific penalties, after notice and opportunity to be heard, which depend on whether the violation was the result of fraud, gross negligence or simple negligence. It also caps the maximum penalties if the importer discloses the violation before the commencement of a formal investigation of the violation. Under relator's interpretation of the False Claims Act, this carefully crafted statute providing specific penalties for a fraudulent statement in the importation of mismarked goods could be bypassed by a private citizen bringing an action under the reverse false claims provision of 31 U.S.C. § 3729(a)(7). It would also serve to bypass the statutory requirement that in an action brought by the United States Attorney for the recovery of any fine, penalty or forfeiture based on fraud, the government has the burden of proof to establish the alleged violation by clear and convincing evidence, see 19 U.S.C. § 1592(e)(2), as well as the five-year statute of limitations for bringing an action to recover any duty, pecuniary penalty of forfeiture of property. 19 U.S.C. § 1621.
Even though Count Five may stand on a somewhat different footing than relator's other claims, the Court is still persuaded that it does not come within the ambit of the reverse false claims provision of 31 U.S.C. § 3729(a)(7).
IV.
Although the government declined to intervene in this action, the Department of Justice, through the United States Attorney for the Central District of California, filed an amicus curiae brief opposing defendants' motions to dismiss. That brief, however, was limited to only one of the issues raised by the motions to dismiss, i.e. whether the comprehensive administrative scheme of the customs laws provides for enforcement only by the Customs Service and precludes a private qui tam action under the False Claims Act. Stating that "As the primary enforcer of the False Claims Act, the U.S. Department of Justice . . . has a significant interest in the proper resolution of issues bearing upon federal court jurisdiction over qui tam actions" (Amicus Curiae brief, p. 2), the Department opposed the argument of defendants that the customs laws precluded a qui tam action but expressly took no position regarding the basic question of whether the relator has stated a claim upon which relief can be granted, stating:
This is an issue the Court has not addressed in this opinion in light of the Court's finding that § 3729 (a) (7) does not encompass relator's claim. It is thus unnecessary to decide whether, if relator's claim fell within the proper scope of the False Claims Act, it would conflict with the alleged intent of Congress, in enacting a comprehensive regulatory scheme to deal with customs violations, to preempt any private cause of action predicated upon violations of the customs laws.
It may or may not be the case, as defendants have argued in other sections of their memoranda, that relator's allegations, even if true, fail to state a proper False Claims Act claim. [FN 6]
[FN 6] The government does not intend to address that issue in this brief.
Amicus Curiae brief, p. 5.
After the case was transferred to this Court, the Department of Justice, through the United States Attorney for the Southern District of Ohio, filed a supplemental brief in which the Department not only reiterated its earlier argument but, for the first time, opposed defendants' argument that the Prawer court's definition of "obligation" is the one that should be adopted by this Court. (Supplemental Amicus Curiae brief, pp. 3-8).
This Court, however, finds more persuasive the position taken by the Department of Justice in United States ex rel. Sequoia Orange Co. v. Oxnard Lemon Co., Case Nos. CV-F-91-194, 195, 196 197 OWW, (E.D. Cal.), in which the Department, at some length, argued forcibly that § 3729(a) (7) does not encompass a claim based on the submission of false records to avoid payment to the United States of forfeitures or fines.
Although Congress appears to have originally intended to proscribe the submission of so-called reverse false claims, see S.Rep. 99-345 at 18-19, in order to eliminate any lingering uncertainty, the False Claims Amendments Act of 1986 included a provision expressly proscribing the submission of such claims. See Smith v. United States, 287 F.2d 299 (5th Cir. 1961); United States v. Douglas, 626 F.Supp. 621 (E.D. Va. 1985). Furthermore, both the Senate Report accompanying the 1986 amendments to the False Claims Act, and the congressional testimony of Department of Justice officials, demonstrate that the goal of the reverse false claim provision was to ensure that individuals seeking to avoid paying money "owed" the Government would be found equally liable under the Act as if they had submitted a false claim to receive federal funds. In introducing the Act's new provision covering reverse false claims, the Senate Report refers specifically to "fraudulent attempts to pay the Government less than is owed in connection with any goods, services, concessions or other benefits." S.Rep. No. 345 at 9. This language is entirely consistent with the Government's argument that an attempt to circumvent an obligation to pay created solely as the result of a violation of an administrative enforcement statute does not constitute a cognizable claim under the Act. The civil forfeitures that could be imposed if Oxnard has, in fact, violated the prorate regulations, see Agricultural Marketing Agreement Act, 7 U.S.C. § 608a(5), are anything but sums "owed" the Government in the sense presumably intended by Congress and strongly suggested by the relevant legislative history — i.e., money owed the Government in connection with or in exchange for Government "goods," "services" or "benefits." In fact, Sequoia's theory would make any violation of any statute or regulation(s) that has a civil or criminal, penalty, a violation of the False Claims Act as well. [FN 4] (emphasis in original).
An unreported decision in that case, issued on May 4, 1992, appears at 1992 WL 795477. The government's argument was rejected, and the court held that any false reports submitted by the defendants to the government in that case with the effect that payments of forfeitures or fines to the government were avoided constituted false claims under the reverse false claims provision of the False Claims Act, 31 U.S.C. § 3729(a) (7).
The government's language in footnote 4 is especially pertinent in this case. It reads, in part, as follows:
Not every false statement or record submitted in connection with even a bona fide Government benefits program gives rise to liability under the Act; rather, only those fraudulent records and statements that: (1) seek to obtain more Government money or property than would otherwise be due; or (2) represent that the Government is owed less money or property than is actually the case, constitute actionable False Claims Act violations. False claims submitted by individuals or entities seeking to avoid payment to the Government of administrative fines, penalties or forfeitures (OSHA, FAA, SEC, etc.), or criminal fines imposed pursuant to Title 18 of the United States Code, are not the stuff of False Claims Act lawsuits, regardless of whether the fine or forfeiture, payment of which has been evaded, is imposed in connection with the violation of a federal benefits program.United States ex rel. Sequoia Orange Company v. Oxnard Lemon Co., supra, Memorandum of the United States in support of its motion to dismiss, pp. 6-7, n. 4.
In its reply to the relator's opposition to the government's motion to dismiss the complaint in the Sequoia case, the government reiterated, in the following language, its interpretation of the limited scope of the reverse false claim provision and expressed concern about the possible consequences of adopting the expansive interpretation advanced by the relator in that case, the same interpretation which the relator in this case urges upon the Court:
There is a fundamental dispute between the government and the relator as to the scope and applicability of the False Claims Act. The government believes that the touchstone in determining whether the FCA applies to past conduct must be the identification of some loss or potential loss to the Treasury through a false claim or statement submitted pursuant to a contract or agreement with the United States. In relator's view, any false statement made in response to a federal regulatory requirement, where such false statement may be punished by a civil monetary penalty, should also be actionable under the FCA. See Opposition at 14-15. Relator's interpretation, which would authorize private parties to unilaterally use the FCA as an omnibus federal regulatory enforcement statute, finds no support in the Act itself or its legislative history. Moreover, it contains the potential (already realized to some extent in Sequoia's ongoing qui tam litigation against other orange handlers) for a for-profit entity to act in the guise of a private attorney general to harass its competitors and possibly to obtain an advantage in the marketplace thereby. (emphasis in original)United States ex rel Sequoia Orange Company, supra, Government's reply to relator's opposition to motion to dismiss, pp. 4-5. This Court agrees with the terse, but accurate, statement of the government in Sequoia Orange that, notwithstanding a relator's assertion that a defendant has engaged in patently unlawful conduct, "False claims submitted by individuals or entities seeking to avoid payment to the government of administrative fines, penalties or forfeitures (OSHA, FAA, SEC, etc.) or criminal fines imposed pursuant to Title 18 of the United States Code, are not the stuff of False Claims Act lawsuits. . . ."
V.
Despite the remedial purpose served by the False Claims Act, there are limits to a private party's ability to step into the shoes of the government and pursue an action against another party for allegedly violating a duty owed to the government. The Court believes that to recognize a cause of action in relator's favor under the False Claims Act in this case would, on the facts presented here, exceed those limits. Consequently, the Court concludes that the motion to dismiss is well taken, and it will dismiss the complaint for failure to state a claim upon which relief can be granted under 31 U.S.C. § 3729 (a) (7).
Based upon the foregoing, the defendants' motion to dismiss the complaint, filed pursuant to Fed.R.Civ.P. 12(b)(6) is GRANTED. All other pending motions are DENIED AS MOOT. This action is DISMISSED WITH PREJUDICE. The Clerk is directed to enter a judgment in favor of the defendants.
JUDGMENT IN A CIVIL CASE
Jury Verdict. This action came before the Court for a trial by jury. The issues have been tried and the jury has rendered its verdict.Decision by Court. This action came to trial or hearing before the Court. The issues have been tried or heard and a decision has been rendered.
[X] Decision by Court. This action was decided by the Court without a trial or hearing.
IT IS ORDERED AND ADJUDGED that pursuant to the Opinion and Order of November 13, 1997, the defendants' motion to dismiss the complaint, filed pursuant to Fed.R.Civ.P. 12(b)(6) is GRANTED. JUDGMENT is entered in favor of the defendants and this action is DISMISSED WITH PREJUDICE.