United States v. Pemco Aeroplex, Inc. , 166 F.3d 1311 ( 1999 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
11/15/99
No. 97-6910 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 97-P-1300-S
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
versus
PEMCO AEROPLEX, INC.,
a subsidiary of Precision Standard
Company, a corporation,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
_________________________
(November 15, 1999)
Before ANDERSON, Chief Judge, TJOFLAT, EDMONDSON, COX, BIRCH,
DUBINA, BLACK, CARNES, BARKETT, HULL, MARCUS and WILSON, Circuit
Judges.
HULL, Circuit Judge:
The United States (“government”) appeals the district court’s dismissal of its
False Claims Act and state common law claims against appellee Pemco Aeroplex,
Inc. (“Pemco”). The specific issue we decide is whether the district court erred in
dismissing for failure to state a claim under Fed. R. Civ. P. 12(b)(6) the
government’s “reverse false claim” under the False Claims Act, 31 U.S.C. §
3729(a)(7). We conclude that the government has stated a claim under § 3729(a)(7)
and thus reverse the dismissal of its complaint.
I. BACKGROUND
The complaint alleges that Pemco performed high-level maintenance of C-
130 aircraft as a contractor for the United States Air Force (“Air Force”), and as a
result of its contracts with the Air Force, Pemco had on its premises both older
model and newer model C-130 wings belonging to the government. As asserted in
the complaint, Pemco possessed five wings (three right-side wings and two left-
side wings) belonging to the government that “were not needed by PEMCO for
performance of its contracts with the United States.” Consequently, Pemco
initiated a procedure known as “Plant Clearance” in order to have the government
instruct Pemco regarding the return of the wings to the Air Force or other disposal.1
1
The Federal Acquisition Regulations define “Plant Clearance” as “all actions relating to the
screening, redistribution, and disposal of contractor inventory from a contractor’s plant or work
site.” 48 C.F.R. § 45.601. Under these Regulations, a government contractor must use Standard
Form 1428, Inventory Schedule B to advise the government that it is holding certain government
2
The complaint states that “[u]nder the Plant Clearance procedure, the contractor (in
this case PEMCO) advises the government that the contractor is holding certain
property belonging to the United States in excess to the needs of its [g]overnment
contract.” The complaint also explains that the contractor may offer to purchase
the property from the government, and the government can elect to sell the
property to the contractor rather than having the contractor return the property or
providing alternative disposition instructions to the contractor.
As asserted in the complaint, “PEMCO submitted to the United States a
document entitled ‘Inventory Schedule B’ which was part of the ‘Plant Clearance’
procedure mentioned above.” The complaint continues that, on this Inventory
Schedule B, Pemco listed the five wings and described those wings using one
national stock number for the right-side wings and another for the left-side wings.
The government uses national stock numbers for correct and precise identification
of items within its inventory system. However, according to the complaint, the
national stock numbers Pemco used in its Inventory Schedule B incorrectly
property in excess of its government contract. See 48 C.F.R. § 45.606-5(a)(2). The government
may then “exercise its rights to require delivery of any contractor inventory,” or dispose of the
property through: (1) allowing the contractor to purchase the property at cost; (2) returning the
property to the suppliers; (3) donating the property to “eligible donees”; (4) selling the property,
“including purchase or retention at less than cost by the prime contractor”; (5) donating the property
to public bodies; or (6) abandoning or destroying the property. See 48 C.F.R. § 45.603.
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referenced older, obsolete model wings that the government routinely disposed of
as scrap.
The complaint asserts that in its Inventory Schedule B, Pemco offered to
purchase the five wings for a total price of $1,875, the scrap value corresponding
to the national stock numbers for older, obsolete model wings. The complaint
alleges that Pemco knew that the national stock numbers it used in its Inventory
Schedule B were incorrect and that the five newer model wings actually in its
possession were worth substantially more than $1,875. According to the
complaint, as a result of Pemco’s use of the incorrect national stock numbers, the
government agreed to sell the five wings to Pemco for $1,875. The complaint
asserts that Pemco, shortly after purchasing these five wings from the government
for $1,875, sold just two of the five wings for approximately $1,500,000. The
complaint also estimates the total market value of the five newer model wings
actually in Pemco’s possession to be at least $2,071,526.
The government sued Pemco in the United States District Court for the
Northern District of Alabama, alleging that Pemco had violated the False Claims
Act, 31 U.S.C. §§ 3729-3733, and also alleging state common law counts of
mistake of fact and unjust enrichment. With regard to the False Claims Act count,
the complaint specifically contended that Pemco “knowingly made, used, or caused
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to be made or used, false statements or actions for the purpose of obtaining
property from the United States,” “knowingly presented, or caused to be presented,
to an officer or employee of the United States Government a false or fraudulent
claim for approval,” and “knowingly made, used, or caused 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.” The district court granted
Pemco’s motion to dismiss the False Claims Act count for failure to state a claim
under Rule 12(b)(6). The court also dismissed the government’s state law counts
but did not specify the grounds for dismissal.
A panel of this Court affirmed the district court’s dismissal. United States v.
Pemco Aeroplex, Inc., 166 F.3d 1311 (11th Cir. 1999). However, we vacated the
panel opinion in order to hear the case en banc. United States v. Pemco Aeroplex,
Inc., 179 F.3d 1327 (11th Cir. 1999).
II. STANDARD OF REVIEW
We review de novo a dismissal for failure to state a claim, applying the same
standard used by the district court. Harper v. Blockbuster Entertainment Corp.,
139 F.3d 1385, 1387 (11th Cir.), cert. denied, — U.S. —, 119 S. Ct. 509 (1998).
We must accept the allegations set forth in the complaint as true for purposes of a
motion to dismiss. Gonzalez v. McNary, 980 F.2d 1418, 1419 (11th Cir. 1993).
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Additionally, the district court’s disposition of Pemco’s motion to dismiss involved
interpretation of the False Claims Act, and we review de novo questions of
statutory interpretation. Id.III. DISCUSSION
The “reverse false claim” provision of the False Claims Act, 31 U.S.C. §
3729(a)(7), allows the government to recover a civil penalty from any person who
“knowingly makes, uses, or causes to be made or used, a false record or statement
to conceal, avoid, or decrease an obligation to pay or transmit money or property to
the Government.” The government included the language of § 3729(a)(7) almost
verbatim in the False Claims Act count of the complaint.
The complaint also has sufficient allegations to survive a motion to dismiss
for failure to state a cause of action under § 3729(a)(7). The complaint contains
express references to Pemco’s contracts with the Air Force, emphasizing that the
five wings at issue belonged to the government and that Pemco obtained the wings
“as a result” of its contracts with the Air Force. The complaint alleges that, after
Pemco determined that those five wings exceeded its contractual needs, Pemco
submitted an Inventory Schedule B to initiate the Plant Clearance procedure and to
receive instructions from the government regarding disposition of the wings. The
complaint asserts that Pemco knowingly used the wrong national stock numbers on
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this inventory schedule so the government would accept Pemco’s offer to purchase
the five wings for a total price of $1,875--a price substantially less than the wings’
actual market value. According to the allegations in the complaint, Pemco
misstated the national stock numbers to avoid accounting to the government for the
full value of the wings.
The complaint’s allegations make clear that Pemco had an existing, legal
“obligation to pay or transmit money or property to the Government” for purposes
of § 3729(a)(7).2 As already mentioned, the complaint contains express references
to Pemco’s having an obligation under its contracts with the government to account
for the full value of the five wings in its possession. According to the complaint,
these contracts required Pemco, upon determining that it possessed excess
government property, to submit an inventory schedule identifying the excess
property and to dispose of that property in accordance with the government’s
instructions. The complaint also explains that, rather than selling excess property
to a contractor such as Pemco, the government could require its contractors either
to return excess government property or to make some other disposition of that
property. Thus, Pemco also had an existing contractual obligation either to return
2
The government asks us to hold that a potential obligation would satisfy the requirements
of § 3729(a)(7), but we do not reach that issue because the obligation here is so clearly an existing
obligation.
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(i.e., “transmit” under § 3729(a)(7)) or to purchase (i.e., “pay” for under §
3729(a)(7)) the excess government property it possessed.
Pemco argues that it was required to return the wings only at the end of its
government contract or at an earlier date if required by the government’s
contracting officer. According to Pemco, because neither of those events had
occurred, Pemco did not have an existing obligation to return or pay for the wings
at the time it submitted the inventory schedule. In addition, Pemco argues that the
submission of the inventory schedule was merely an offer to purchase the excess
wings but did not establish either an obligation to purchase or the specific purchase
price. According to Pemco, at best, this offer created only a contingent obligation
to purchase--dependent on the government’s inspection of the property and
acceptance of Pemco’s offer.
These arguments ignore the complaint’s allegations that at the time Pemco
submitted its inventory schedule to the government, the wings were deemed
excess, and that thus Pemco had a specific legal obligation at that time to dispose
of any excess property in accordance with the government’s instructions. Indeed,
Pemco only submitted the inventory schedule because the wings were deemed
excess, and Pemco also had a pre-existing contractual obligation to submit such a
form to initiate the Plant Clearance procedure for excess government property.
8
That Pemco offered to purchase the property and that a specific purchase price had
not been agreed upon at the time Pemco submitted the inventory form are not the
touchstone. As alleged in the complaint, Pemco had government property in its
possession and a contractual obligation to account for the full value of any excess
government property by returning that property or otherwise disposing of it in
accordance with the government’s instructions. This legal obligation was a
specific, ongoing obligation during the life of the contract and did not begin or end
at any one point in time. This is the relevant obligation and submitting the
inventory form was just part of fulfilling this pre-existing contractual obligation.
Pemco relies on United States v. Q International Courier, Inc., 131 F.3d 770(8th Cir. 1997), but that decision does not involve a government contract. Instead,
Q International Courier involves a mail courier firm that transferred bulk mail from
the United States to Barbados in order to remail the letters individually from
Barbados to the United States. Id. at 772. Through this scheme, Q International
Courier (“Quick”) was able to take advantage of the discounted rates the United
States Postal Service charged the Barbadian postal service, achieving significant
savings for its customers. Id. In contrast to this case, Quick was not a government
contractor. Id. at 772-73. Thus, any “obligation” Quick may have owed to the
government could only have derived from statutes, regulations, judgments--legal
9
sources other than a written contract. Indeed, the Eighth Circuit in Q International
Courier explicitly noted that the government did not have a contract with Quick,
thereby suggesting that a contractual duty would qualify as an “obligation” in its
opinion. Id. at 773. In addition, the Eighth Circuit in Q International Courier
concluded that no obligation to pay domestic postage rates could be found in any
of the statutes or regulations cited by the government. Id. at 773-74.
In contrast, Pemco had a written contract which expressly obligated Pemco
to be responsible and accountable for the government property in its possession
and to return that property to the government or dispose of the property in
accordance with the government’s instructions. In addition, the government has
pointed to regulations that obligate Pemco to return government property not
needed in the performance of the contract. Q International Courier, if anything,
shows why the district court erred in dismissing the government’s complaint for
failure to state a claim under Rule 12(b)(6).3
IV. CONCLUSION
3
In its en banc brief, Pemco also relies on American Textile Mfrs. Inst., Inc. v. The Limited,
Inc., 190 F.3d 729 (6th Cir. 1999), where the defendants allegedly submitted false claims relating to
their importation of textiles and apparel into the United States, in order to avoid paying penalties to
the government for violating customs laws. Id. at 731-32. In that case, the Sixth Circuit concluded
that potential liability under a statute is not an “obligation” for purposes of § 3729(a)(7). Id. at 738-
41. However, Pemco’s reliance on American Textile is misplaced because American Textile also
does not involve a government contract.
10
Because we conclude that the government stated a claim under § 3729(a)(7),
we reverse the order of dismissal and remand with directions to reinstate this case.
Additionally, Pemco argues that the Contract Disputes Act, 41 U.S.C. §§ 601-613,
deprives the district court of subject matter jurisdiction over the government’s
common law claims in Counts II and III of the complaint. The district court’s
dismissal order did not address this issue. Given the fact that we require
reinstatement of the federal claim, we leave for the district court to decide in the
first instance on remand whether subject matter jurisdiction exists over the
government’s common law claims in Counts II and III.
We reverse the district court’s dismissal of the federal claim brought under §
3729(a)(7) in Count I, vacate the dismissal of the common law claims in Counts II
and III, and remand this case for further proceedings consistent with this opinion.
REVERSED IN PART; VACATED AND REMANDED IN PART.
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