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noting that complaint must set forth a factual basis for the information and belief upon which the fraud claims are founded
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CIVIL ACTION No. 00-1755
July 19, 2001
ORDER AND REASONS
Before the Court is Defendant J-M Manufacturing Company, Inc.'s Motion to Dismiss Relator's Claims Pursuant to Rule 9(b). The Court finds oral argument unnecessary. See LR 78.IE. For the following reasons, the Motion is GRANTED with leave to amend.
A. BACKGROUND
Relator Stan Price has a long history in the polyvinyl chloride (PVC) pipe industry. Since the 1960s, he has worked for and presided over companies that sell PVC pipes, often to federal, local, and state governmental entities for use in public water projects. According to Mr. Price, governmental project engineers generally demand two types of PVC pipe, C-900 and C-905, which are warranted by the manufacturer to have been individually pressure-tested and certified to meet specific industry standards and specifications established by the American Waterworks Association (AWWA). See Cplt. ¶ 10 Disclosure Statement generally.
In this False Claim Act case, Mr. Price alleges that he has personal knowledge that J-M Manufacturing Company, Inc. ("J-M") "undertook to supply large quantities of AWWA C-900 and C-905 pressure-tested water pipe to federal, state and local governments in Texas and other states for the construction of public water delivery systems" but "intentionally delivered to the various public entities pipe which had not been pressure-tested in conformance with the specifications and standards governing AWWA C-900 and C-905." Cplt. ¶¶ 11-12. Mr. Price alleges that J-M would then "present to the various governmental entities a claim for payment from federal funds for the untested PVC pipe representing to said entities that the pipe was tested in conformance with [those] specifications", even though J-M knew differently, in violation of 31 U.S.C. § 3729 (a)(1). In. ¶¶ 13-14. Mr. Price also alleges that J-M intentionally caused the untested pipes to bear false C-900 and C-905 certification stamps and maintained false records in furtherance of the false claims scheme, in violation of 31 U.S.C. § 3729 (a)(2). Id. ¶¶ 20-21.
On March 1, 2001 the Government notified the Court of its intention not to intervene in the instant action.
B. LAW AND ANALYSIS
J-M moves to dismiss Mr. Price's False Claims Act claims for failure to comply with Federal Rule of Civil Procedure 9(b), which requires that, "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. . . ." It is well established that claims brought under the False Claims Act must comply with Rule 9(b). See United States ex rel. Russell v. Epic Health care Mgmt. Group, 193 F.3d 304, 308 (5th Cir. 1999); United States ex rel. Thompson v. Columbia Health care Corp., 125 F.3d 899, 903 (5th Cir. 1997). "To plead fraud with particularity a plaintiff must include the time, place and contents of the false representations, as well as the identity of the person making the misrepresentation and what that person obtained thereby", Russell, 193 F.3d at 308 (internal modifications omitted); stated differently, a plaintiff must "set forth the "who, what, when, where, and how' of the alleged fraud." Thompson, 125 F.3d at 903 (quoting Williams v. WMX Tech. Inc., 112 F.3d 175, 179 (5th Cir. 1997). This rule is relaxed to an extent when "the facts relating to the alleged fraud are peculiarly within the perpetrator's knowledge." Id. In such cases, "the complaint must set forth a factual basis" for the information and belief upon which the fraud claims are founded. Id.
Mr. Price's complaint falls far short of the requirements of Rule 9(b). Though he does provide the basic model for the alleged fraud, Mr. Price alleges no particular victims, no particular projects, and no particular dates of contracts, deliveries or laying of inferior pipe, submission of claims or false certifications. The only slightly specific information Mr. Price provides is contained in his disclosure statement, which states, "With regard to J-M, Mr. Price will testify, among other topics, about his recent trip to Georgia where he observed the installation of several stacks of untested J-M C-905 and C-900 pipe being installed on a job-site. Further, Mr. Price witnessed the installation of untested J-M C-905 and C-900 pipe at a job-site in Richardson, Texas." P. 6. In light of the fuzziness of the term "recent," the geographic scope of the state of Georgia, and the numerous projects for which Richardson, Texas could have demanded PVC pipe over an indefinite period of time, even these allegations fail to provide sufficient "circumstantial detail. . . to give notice" to J-M of the fraud claims against which it must defend itself. United States ex rel. Johnson v. Shell Oil Co 183 F.R.D. 204, 206 (E.D. Tex. 1998). Mr. Price alleges in his disclosure statement that "other manufacturers providing product to this market may [also] be certifying untested AWWA C-900 and C-905 pipe to federally funded projects", p. 6, raising the possibility that Mr. Price could have mistaken another PVC supplier engaged in the "recent" bad acts in "Georgia" for J-M. Because he alleges personal knowledge, Mr. Price has no excuse for failing to allege more particular information regarding these acts.
"Mr. Price's argument that he cannot logically identify' the "specific location where the alleged failure to test occurred," Opp'n Mem. p. 2, is a straw man, especially in light of his allegation that J-M falsely placed certification stamps on untested pipes, an act which clearly must have had an identifiable situs.
Professors Wright and Miller have recognized that "[t]he sufficiency of a particular pleading under Rule 9(b) depends upon a number of variables. For example, the degree of detail required often turns on the context in which the fraud is alleged to have occurred and a number of cases illustrating the application of the rule in a wide variety of contexts are cited in the note. Considerable particularity may be necessary to state a claim under the federal civil false claim statutes or a claim attacking a judgment on the ground of fraud, yet a very simple allegation of fraud in bankruptcy may suffice." 5 CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1298, at 627-45 (2d ed. 1990) (footnotes omitted).
The story might be different, however, as to the exact identities of the J-M personnel who allegedly made the false statements. As noted above, a False Claim Act plaintiff ordinarily must specify the "identity of the person making the misrepresentation". Russell, 193 F.3d at 308. Mr. Price alleges that he does not know the "names and/or capacities" of any potentially liable J-M "agent and/or employee". Cplt. ¶ 7. This allegation could be plausible if, for example, Mr. Price stumbled upon the installation of inferior pipe on the unspecified date in the unspecified Georgia locale but was not present for the signing of the contract for the C-900 and C-905 pipe, the false certification and delivery of the inferior pipe, or the submission of the false claim to the unspecified governmental entity. Mr. Price's professed knowledge of the PVC pipe world belies this contention, but regardless of its ultimate tenability, he will be given an opportunity to amend his complaint.
For the reasons stated above, the Court will grant J-M's Motion to Dismiss but will provide Mr. Price with an opportunity to amend his complaint to comply with Rule 9(b). given the skeletal composition of the original complaint, it would take far too many pages for the Court to instruct Mr. Price as to what details are needed to flesh out his claims. At a minimum, he should provide much more specific detail as to the Georgia and Texas events, including, but not limited to, the exact date, the exact location, and the exact governmental entities and J-M personnel involved. From his disclosure statement and complaint, the Court infers that Mr. Price suspects foul play in additional, particular transactions and projects involving J-M; Mr. Price should include allegations regarding the "who, what, when, where, and how," or at least a reasonably detailed factual basis for his suspicions, of these additional acts of fraud. The mere allegation that Mr. Price has a long history in the PVC pipe industry does not constitute a sufficient factual basis for his suspicions.
The Court expects Mr. Price to amend his complaint in good faith compliance with the spirit of Rule 9(b) and this Order.
C. CONCLUSION
For the reasons set forth above, IT IS ORDERED that Defendant J-M Manufacturing Company, Inc.'s Motion to Dismiss Relator's Claims Pursuant to Rule 9(b) is GRANTED, but Relator Stan Price is GRANTED LEAVE TO AMEND his Complaint within 30 days of entry of this Order and Reasons.