[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________________
No. 97-6910
FILED
________________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
D.C. Docket No. 97-P-1300-S 02/08/99
THOMAS K. KAHN
CLERK
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
_________________________________________________________________
(February 8, 1999)
Before HATCHETT, Chief Judge, HULL, Circuit Judge, and MOORE*, District Judge.
HATCHETT, Chief Judge:
__________________________________
*
Honorable William T. Moore, Jr., U.S. District Judge for the Southern District of Georgia,
sitting by designation.
Appellant United States (government) challenges the district court’s dismissal of its False
Claims Act lawsuit and state common law claims against appellee Pemco Aeroplex, Inc.
(Pemco) for failing to state a claim. We affirm.
I. BACKGROUND
Since the 1960s, Pemco and its predecessor, Hayes International Corporation, have
contracted to perform high-level maintenance of C-130 aircraft for the United States Air Force
(Air Force). Pemco’s contracted performance included assembling new model wings and
replacing older model wings on C-130s. As a result of their contract, Pemco had on its premises
both older and newer model wings.
In 1991 Pemco had on its premises five C-130 wings that belonged to the government
that it did not need to perform its contract. Pemco decided to initiate a “Plant Clearance
Procedure” so that it could receive instructions from the Air Force concerning the disposition of
the five wings. The Federal Acquisition Regulations define the plant clearance procedure 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 (1997). Under this procedure, a
government contractor submits a form advising the government that it is holding certain
government property in excess of its government contract. 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.
2
Pursuant to the plant clearance procedure, Pemco submitted a “Standard Form 1428,
Inventory Schedule B” (inventory schedule) on May 28, 1991, that notified the Air Force that it
held five C-130 wings (three right-side wings and two left-side wings), and described the wings,
referencing them with two national stock numbers.1 The government uses national stock
numbers to identify precisely items within its inventory system. Pemco used national stock
numbers that identified older model wings in the inventory schedule it submitted for plant
clearance, and offered to purchase the wings as scrap -- estimating their value as $1,125 for the
three right-side wings and $750 for the two left-side wings.2
The government agreed to sell the five wings to Pemco for their scrap value of $1,875
listed in the inventory schedule. Pemco, however, had wrongfully identified the wings’ national
stock numbers. The wings it purchased from the government were actually newer-model wings
and worth much more than the scrap value Pemco had listed in the inventory schedule. Shortly
after purchasing the wings from the government, Pemco sold two of the wings for approximately
$1,500,000. The government estimates the total market value of the wings to be at least
$2,071,526.25.
The government thereafter 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
1
The Federal Acquisition Regulations require the use of Standard Form 1428, Inventory
Schedule B in 48 C.F.R. section 45.606-5(a)(2).
2
The government asserts in its complaint that the type of older wings that Pemco
referenced in its inventory schedule and corresponding national stock number were “routinely
disposed of as scrap.”
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enrichment. With regard to the False Claims Act, the government contended that Pemco
“knowingly made, used, or caused 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, holding that: (1) the
dismissal was with prejudice as to the government’s claim regarding a false claim under the
False Claims Act because the government did not allege that Pemco submitted documents that
constituted a false “claim”; and (2) the dismissal was without prejudice as to the government’s
ability to refile a False Claims Act complaint that contained the particularity requirement for
intent to defraud under Federal Rule of Civil Procedure 9(b).
II. ISSUE
The issue we decide is whether the district court erred in dismissing the government’s
“reverse false claim” under the False Claims Act,
31 U.S.C. § 3729(a)(7).
III. STANDARD OF REVIEW
We review de novo a dismissal for failure to state a claim, and apply the same standard as
did the district court. Harper v. Blockbuster Entertainment Corp.,
139 F.3d 1385, 1387 (11th
Cir. 1998), cert. denied,
67 U.S.L.W. 3106 (U.S. Nov. 16, 1998) (No. 98-200). We must accept
the allegations set forth in the complaint as true for purposes of a motion to dismiss. See
Gonzalez v. McNary,
980 F.2d 1418, 1419 (11th Cir. 1993). The district courts should grant
motions to dismiss only “when the movant demonstrates ‘beyond doubt that the plaintiff can
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prove no set of facts in support of his claim which would entitle him to relief.’” Harper,
139 F.3d
at 1387 (quoting Conley v. Gibson,
355 U.S. 41, 45-46 (1957)). Additionally, because the
district court’s disposition of Pemco’s motion to dismiss involved interpretation of the False
Claims Act, we must review de novo questions of statutory interpretation. Gonzalez,
980 F.2d at
1419.
IV. DISCUSSION
In this appeal, the government contends that the district court erred in dismissing its
“reverse false claim” under the False Claims Act.
31 U.S.C. § 3729(a)(7). That provision
provides that 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” is liable to the government “for a civil penalty of not less than
$5,000 and not more than $10,000, plus 3 times the amount of damages which the Government
sustains because of the act of that person . . . .”
31 U.S.C. § 3729. The government argues that
Pemco caused the government to sell the wings at a price below true value because Pemco
knowingly misidentified the wings on the inventory schedule. Thus, the government contends
that Pemco submitted a “reverse false claim” and violated section 3729(a)(7).
This court has not had the opportunity to construe the reverse false claim provision of the
False Claims Act. The Eighth Circuit in United States v. Q Int’l Courier, Inc. analyzed the
reverse false claim provision of section 3729(a)(7) in the context of an illegal international
“ABA remail” scheme.
131 F.3d 770 (8th Cir. 1997). Essentially, Q International Courier
(Quick) transferred bulk mail from the United States to Barbados for the purposes of remailing
the letters individually back into the United States. The United States Postal Service charged the
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Barbadian Postal Service significantly less for the delivery to the United States than it would for
the same delivery within the United States. See Q Int’l Courier,
131 F.3d at 772. The
government contended that Quick violated the reverse false claim provision of section
3729(a)(7), asserting that Quick “owed an obligation to the United States for the full domestic
postage for each letter and that they attempted to reduce this obligation through fraudulent
statements or records.” Q Int’l Courier,
131 F.3d at 772. The Eighth Circuit held that the
government failed to establish that Quick “had some duty to pay money or property that it sought
to evade by using false statements or records” and affirmed the district court’s grant of summary
judgment in favor of Quick on the government’s False Claims Act allegations. See Q Int’l
Courier,
131 F.3d at 774.
We find the Eighth Circuit’s analysis of the reverse false claims provision to be
persuasive. The Q Int’l Courier court construed the plain language of the False Claims Act, as
well as its legislative history, and held that in order to recover under the reverse false claims
provision, the government “must demonstrate that it was owed a specific, legal obligation at the
time that the alleged false record or statement was made, used, or caused to be made or used.” Q
Int’l Courier,
131 F.3d at 773. Further, the Q Int’l Courier court held that this obligation could
not be “merely a potential liability,” but instead
a defendant must have had a present duty to pay money or property that was
created by a statute, regulation, contract, judgment, or acknowledgment of
indebtedness. The duty, in other words, must have been an obligation in the
nature of those that gave rise to actions of debt at common law for money or
things owed.
Q Int’l Courier,
131 F.3d at 773; see also United States ex rel. S. Prawer & Co. v. Verrill &
Dana,
946 F. Supp. 87, 94 (D. Me. 1996) (“‘obligation’ in the False Claims Act refers to
6
something more than potential liability or moral or social duty; a legal obligation seems to be the
touchstone.”).
The reverse false claim’s legislative history further persuades us of this specific
obligation requirement. As the Q Int’l Courier court noted, the legislative history twice refers to
“money owed” under the false claims provision as the type of duty that the reverse claims
provision addresses. See Q Int’l Courier,
131 F.3d 773. We agree that Congress intended that
the government must premise a reverse false claim upon a specific, legal obligation at the time a
defendant used or caused to be used an alleged false claim. See, e.g., False Claims Amendments
Act of 1986, S. Rep. No. 99-345 at 15, 18, 1986 U.S.C.C.A.N. (
100 Stat. 3153) 5266, 5280, 5283
(“an individual who makes a material misrepresentation to avoid paying money owed the
Government should be equally liable under the Act as if he had submitted a false claim.”).
We do not find this type of obligation when we analyze the government’s complaint and
Pemco’s filing of an inventory schedule pursuant to the plant clearance procedure. According to
the Federal Acquisition Regulations, Pemco submitted the inventory schedule to the Air Force’s
plant clearance officer, “an authorized representative of the contracting officer assigned
responsibility for plant clearance.”
48 C.F.R. § 45.601; see also
48 C.F.R. § 45.606-1 (“[w]hen
property is no longer needed to perform the contract, the contractor shall prepare inventory
schedules in accordance with the contract and instructions from the plant clearance officer and
shall promptly submit the schedules to the cognizant contract administration office.”). Within 15
days of receiving the inventory schedule, the plant clearance officer reviews the schedule,
determines its acceptability and requests any corrections. See
48 C.F.R. § 45.606-3(a). Then,
the plant clearance officer “shall verify that (1) the inventory is present at the location indicated,
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(2) the inventory is allocable to the contract, (3) the quantity and condition are correctly stated,
and (4) the contractor has endeavored to divert items to other work.”
48 C.F.R. § 45.606-3(b).
In dealing with “scrap,” the plant clearance officer “shall review the schedules of property
reported as scrap and, if necessary, physically inspect the property involved. If the plant
clearance officer determines that any of the property is serviceable, usable, or salvable, the
contractor shall resubmit it on appropriate inventory schedules.”
48 C.F.R. § 45.607-1(b).
Property the government had not deemed to be “scrap” “shall be screened for use by
Government agencies before disposition by donation or sale.”
48 C.F.R. § 45.608-1(a). After
these procedures, the plant clearance officer may then decide the proper disposition of the
property, which could include selling it to the contractor or requiring delivery to the government.
See
48 C.F.R. § 45.603.
Pemco’s filing of the inventory schedule did not create a specific, legal obligation or a
present duty to pay money, and the government’s complaint does not detail any other type of
reverse false claim. Although Pemco listed the scrap estimate of the wings in the “offer” column
of the inventory schedule, the government could not accept this offer – or demand return of the
wings – until it utilized the plant clearance procedure. See
48 C.F.R. §§ 45.600 - 45.615.
Pemco’s submission of the inventory schedule initiated the plant clearance procedure, and did
not create the type of obligation that the reverse false claim provision of the False Claims Act
requires. Additionally, the “offer” that Pemco submitted in its inventory schedule may have
created a future potential liability (an offer to purchase the wings or return them after the
occurrence of the plant clearance procedure), but did not create the specific legal obligation that
the reverse false claim provision requires. Therefore, we hold that the district court did not err in
8
dismissing the government’s lawsuit under the False Claims Act, including its allegations of
Pemco’s violations of the reverse false claim provision, for failing to state a claim.
V. CONCLUSION
Based on the foregoing, we affirm the district court’s dismissal of the government’s
lawsuit under the False Claims Act for failing to state a claim, and do not reach the government’s
contentions regarding its state common law claims.
AFFIRMED.
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HULL, Circuit Judge, dissenting:
This important case of first impression in this Circuit involves a Rule
12(b)(6) dismissal of the Government’s complaint and not entry of summary
judgment. I dissent because the Government’s complaint clearly states a cause of
action, and the district court erred in dismissing it.
The majority correctly concludes that Section 3729(a)(7) of the False Claims
Act requires a specific, legal obligation to pay or to transmit money or property, at
the time a false statement is made.3 However, the majority incorrectly finds that
the Government’s complaint fails to allege such an obligation. The specific
allegations of the complaint show why the majority errs.
The complaint alleges that Pemco performed high-level maintenance of “C-
130” aircraft for the Air Force and that Pemco had on its premises both older
model and newer model “C-130” wings belonging to the Government. Paragraph
8 of the complaint asserts that Pemco possessed five wings belonging to the
Government that “were not needed by Pemco for performance of its contracts with
the United States,” and that thus Pemco initiated the Plant Clearance procedure in
order to have the Government instruct Pemco regarding the return of the wings to
3
Section 3729(a)(7) provides for liability if a person “knowingly makes, uses, or causes
to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to
pay or transmit money or property to the Government.”
31 U.S.C. § 3729(a)(7) (emphasis
supplied).
the Air Force or other disposal.
Paragraph 9 of the complaint alleges that “[u]nder the Plant Clearance
procedure, the contractor (in this case Pemco) advises the [G]overnment that the
contractor is holding certain property belonging to the United States in excess to
the needs of its Government contract.” The complaint explains that the contractor
may offer to purchase the property from the Government rather than have it
returned. As alleged in paragraph 10 of 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 Pemco listed five wings, described those wings
by two national stock numbers, and incorrectly identified the stock numbers.
According to the complaint, Pemco used stock numbers referencing older, obsolete
model wings worth $1,875, or $375 each, when, in fact, the wings Pemco actually
had were newer model wings with a market value of over $2,071,526. The
complaint alleges that Pemco sold just two of the five wings for $1,500,000.
Pemco does not deny these allegations.
I agree with the majority that Pemco’s inventory schedule alone does not
necessarily create a legal obligation to pay at the time the inventory schedule is
submitted to the Air Force. But the majority errs in considering solely Pemco’s
2
inventory schedule and overlooking Pemco’s contract with the Government that
requires Pemco either to return these wings or to purchase them. The complaint
specifically alleges that Pemco submitted this inventory schedule pursuant to its
contract with the Air Force and that Pemco’s contract required Pemco to advise the
Government about any property belonging to the Government in excess of the
needs of its Government contract. Therefore, Pemco had a contractual obligation
either to return (i.e., “transmit” under § 3729(a)(7)) excess property to the
Government or to purchase (i.e., “pay” for under § 3729(a)(7)) excess property
from the Government.4
The complaint has sufficient allegations to survive the granting of a motion
to dismiss for failure to state a claim. The complaint alone contains express
references to Pemco’s contract with the Air Force, and alleges that Pemco obtained
the wings “as a result of [those] contracts,” and that the inventory schedule was
4
Because the district court disposed of this case on a motion to dismiss, the record below
is extremely bare. Therefore, the text of the dissent discusses only the allegations in the
complaint. However, the Government did attach to its appellate brief the Government property
clause, and portions of Pemco’s contract showing incorporation of that clause in Pemco’s
contract with the Air Force. The contract contained provisions expressly stating (1) that the
Government retained title to all Government-furnished property, (2) that the contractor (Pemco)
was responsible and accountable for all Government property provided under the contract, and
(3) that all such property not consumed in performing the contract was to be returned to the
Government, or disposed of according to its instructions, with proceeds of any such disposal
being credited to the contract price or paid directly to the Government. Add. B at 4b-6b. Since
these documents were not attached to the complaint in the district court, they cannot be
considered on appeal.
3
being filed because these wings exceeded Pemco’s needs under its Government
contract. The complaint expressly references Pemco’s obligations either to return
the wings to the Government or to purchase the wings from the Government and
that the inventory schedule was submitted in connection with those contractual
obligations.
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 form. In addition, Pemco argues that the
submission of the inventory form 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 the inventory form, the wings were deemed excess. Indeed, Pemco only
submitted the inventory form because the wings were deemed excess and it had a
pre-existing contractual obligation to submit such a form. That Pemco offered to
4
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 a contractual obligation to return excess Government
property or to dispose 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.
The majority bases its opinion on United States v. Q International Courier,
Inc.,
131 F.3d 770 (8th Cir. 1997). I agree with the Eighth Circuit’s reasoning but
Q International Courier is totally different from this case because that decision did
not involve a Government contract. Q International Courier involved 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
5
derived from statutes, regulations, judgments – legal sources other than a written
contract.
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 773-774.
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).
Therefore, I respectfully dissent.
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