United States v. Georgia Gulf Corp ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED OCTOBER 13, 2004
September 27, 2004
IN THE UNITED STATES COURT OF APPEALS
Charles R. Fulbruge III
FOR THE FIFTH CIRCUIT Clerk
No. 03-30023
UNITED STATES OF AMERICA, ex rel.
RONALD K. BAIN,
Plaintiffs-Appellees,
versus
GEORGIA GULF CORP,
Defendant-Appellant.
Appeal from the United States District Court
for the Middle District of Louisiana
Before GARWOOD, HIGGINBOTHAM, and SMITH, Circuit Judges.
GARWOOD, Circuit Judge:
Defendant-appellant Georgia Gulf Corporation (Georgia Gulf)
brings this appeal under 28 U.S.C. § 1292(b) challenging the
district court’s denial of its 12(b)(6) motion to dismiss and
alternative Rule 56 motion for summary judgment, as well as the
district court’s ruling that plaintiff-relator-appellee Ronald K.
Bain (Bain) stated a claim under the False Claims Act (FCA), 31
U.S.C. § 3729(a)(7), and that he pleaded his claim under that
statute with sufficient particularity as required by Federal Rule
of Civil Procedure 9(b). We reverse and remand this case for
further proceedings.
Facts and Proceedings Below
This is a qui tam action under the False Claims Act (FCA), 31
U.S.C. § 3729 et seq., filed by plaintiff-relator Bain on July 13,
2001. The government declined to intervene on November 8, 2001, and
the district court unsealed the complaint and ordered it served on
Georgia Gulf. The case is now before this court on the defendant
Georgia Gulf’s interlocutory appeal from the district court’s order
denying Georgia Gulf’s motion to dismiss the complaint under FED. R.
CIV. P. 12(b)(6) (and 9(b)).
Bain began his employment with Georgia Gulf in Plaquemine,
Louisiana in 1982. One of the primary products manufactured by
Georgia Gulf at its chemical facility in Plaquemine is polyvinyl
chloride (PVC), which is a known carcinogen. The PVC is produced
in eighteen reactors which must be routinely opened in order to
conduct physical inspections. When the reactors are opened, vinyl
chloride is released into the atmosphere. This is known as “open
lid loss.” The complaint alleges that “[p]ursuant to the laws of
the United States of America and the State of Louisiana, including
the rules and regulations of and permits issued by the Louisiana
2
Department of Environmental Quality (“LDEQ”) and the Environmental
Protection Agency (“EPA”), Georgia Gulf is required to monitor and
report emissions of vinyl chloride which occur during the production
of PVC.”
The complaint states that Bain was transferred “in late 1994
or early 1995" to the PVC unit to work as a “top deck operator.”
His responsibilities included monitoring and measuring releases of
vinyl chloride during open lid losses and then recording the amount
of each release into the “open lid loss logs.” These logs were then
submitted to the Environmental Protection Agency (EPA) and the
Louisiana Department of Environmental Quality (LDEQ).
The complaint alleges that “[w]hen relator commenced employment
as a top deck operator in the PVC unit he learned” that it was
Georgia Gulf’s “standard operating procedure” to vent vinyl chloride
into the atmosphere without monitoring or measuring the releases and
then to make false records of the emissions during open lid loss.
They in turn allegedly routinely and knowingly submitted these false
records to the EPA and LDEQ. The complaint alleges in general terms
that this practice “was in contravention of 31 U.S.C. § 3729(a)(7),”
the reverse false claims provision of the FCA, because “the actions
of Georgia Gulf have deprived the United States of America and State
of Louisiana of fines, and other monetary assessments which would
have been made had the actions of Georgia Gulf not been concealed.”
On April 22, 2002, Georgia Gulf moved to dismiss the complaint
3
pursuant to Federal Rule of Civil Procedure 12(b)(6), but on June
19, 2002, the district court ordered that Bain first amend his
complaint to comply with Rule 9(b), and gave him twenty days in
which to do so.1 Accordingly, Bain filed an amended complaint on
July 10, 2002 that (a) added miscellaneous allegations related to
his section 3729(a)(7) reverse false claim concerning avoidance of
fines for excessive vinyl chloride emissions during open lid loss
by making false records of such emissions;2 and (b) added an
1
Defendants assert that initially Bain’s complaint against
Georgia Gulf was nearly identical to the complaint that had been
filed by the relator in a similar case, United States, ex rel.
John Doe v. Dow Chemical Co., 343 F.3d 325 (5th Cir. 2003). This
court held in Dow that the plaintiff had failed to properly plead
his FCA claim with particularity.
2
The following allegations in this respect were added:
“At all material times herein, the polyvinyl chloride
unit at the Georgia Gulf facility in Plaquemine,
Louisiana was subject to the various regulations
promulgated by the Louisiana Department of
Environmental Quality and the Environmental Protection
Agency. It is specifically alleged that the polyvinyl
chloride unit at Georgia Gulf was subject to the
provisions of the Clear Air Act, 42 U.S.C. § 7401, et
seq.”
. . .
“Prior to 1995, Georgia Gulf was investigated and fined
by the Louisiana Department of Environmental Quality
and the Environmental Protection Agency for
irregularities pertaining to emissions of vinyl
chloride from the polyvinyl chloride unit at Georgia
Gulf.”
. . .
“From at least 1995 through 1998, Georgia Gulf routinely and
knowingly submitted false and fraudulent records of vinyl
chloride emissions from the polyvinyl chloride unit to the
Louisiana Department of Environmental Quality and
Environmental Protection Agency.”
. . .
4
entirely new claim, namely one for a direct false claim of acquiring
“Emission Reduction Credits (ERC’s)” by false reporting of vinyl
chloride emissions, as follows:
“At all material times herein, Georgia Gulf Corporation
was entitled to and, on information and belief, did
participate in the Emission Reduction Credit Banking
program established and operated by the Louisiana
Department of Environmental Quality. Further, on
information and belief, Georgia Gulf obtained Emission
Reduction Credits (“ERC’s”) based on its reports of
emissions of vinyl chloride from the polyvinyl chloride
unit.”
. . .
“On information and belief, the submission of false and
fraudulent records by Georgia Gulf of vinyl chloride
emissions from the polyvinyl chloride unit allowed
Georgia Gulf to obtain ERC’s which are a thing of value
and could be used by Georgia Gulf or transferred to
another person or company in exchange for consideration.”
On September 3, 2002, no further motions, pleadings or briefs
having been filed after Bain’s July 10, 2002 amended complaint, the
district court denied defendant’s April 22, 2002 motion to dismiss,
stating that Bain had adequately alleged that Georgia Gulf’s
submission of false records and documents had “prevented the
Government from collecting the penalties it would have received had
the records and documents been accurate.” The court held that,
“Further, on information and belief, the submission of
false and fraudulent records by Georgia Gulf of vinyl
chloride emissions from the polyvinyl chloride unit
prevented the Louisiana Department of Environmental
Quality and the Environmental Protection Agency from
imposing statutory fines and penalties which were owed
by Georgia Gulf.”
5
assuming the truth of the allegations, this conduct would fall
within the reverse False Claims Act because “the making of false or
fraudulent records prepared by the defendant would allow Georgia
Gulf to ‘avoid’ an ‘obligation to pay’ what the Government would
have received had Georgia Gulf submitted accurate records.” The
district court’s order did not address Bain’s direct false claim
concerning Emission Reduction Credits which was added by his July
amended complaint and was not addressed by Georgia Gulf’s April
motion to dismiss.
Georgia Gulf on September 17, 2002, filed a motion to
reconsider, and in the alternative, a Rule 56 motion for summary
judgment. On September 19, 2002, the district court denied Georgia
Gulf’s motion for reconsideration respecting its 12(b)(6) motion,
and ordered the parties to conduct discovery. Plaintiff then filed
an ex parte motion to clarify the ruling confirming that the
district court had dismissed the summary judgment motion. The
district court ruled that to the extent Georgia Gulf was filing a
motion for summary judgment, it failed to comply with the Rule 56
procedures and therefore the motion was denied without prejudice.
On October 25, 2002, the district court stayed these
proceedings pending a decision by this court in a similar case,
United States, ex rel. John Doe v. Dow Chemical Co., 343 F.3d 325
(5th Cir. 2003) (Dow), which had been decided by another district
court, and which was “directly opposite the decision rendered by
6
this Court in this case on the same issue.” The district court
certified the order for interlocutory appeal, and Georgia Gulf filed
a petition for permission to appeal the district court’s orders of
September 3 and 19, 2002. On January 7, 2003, this court granted
leave to appeal from the interlocutory orders of the district court.
On August 14, 2003, this court decided Dow without reaching the
issue of whether the complaint stated a claim under the FCA.3
Discussion
1. The Reverse False Claims Act
Under the FCA, the government, or a party suing on its behalf,
may recover for false claims made by the defendant to secure a
payment by the government. Under the reverse False Claims Act
subsection, a plaintiff may recover against “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.” 31 U.S.C. §
3729(a)(7) (2002). In a reverse false claims suit, the defendant’s
action does not result in improper payment by the government to the
defendant, but instead results in no payment to the government when
a payment is obligated.
3
In Dow, this court held that it was proper for the
district court to dismiss Doe’s complaint for failure to plead
with particularity as required by Rule 9(b). Therefore, this
court determined that there was no need to address the district
court’s ruling on Dow’s 12(b)(6) motion to dismiss directed at
the § 3729(a)(7) claim sought to be alleged there.
7
2. Plaintiff’s amended complaint did not state a claim under the
Reverse False Claims Act.
Bain based his section 3729(a)(7) complaint on allegations that
Georgia Gulf concealed from the government the fact that it had
falsified emissions records in an effort to avoid a fine or monetary
penalty to which the company might have been subjected if the
government had known of the illegal emissions and had then decided
to take action against Georgia Gulf. The district court held that
Bain’s complaint stated a cause of action under the reverse False
Claims Act. We disagree.
Bain argues on appeal that Georgia Gulf’s obligations under the
reverse FCA are based on its environmental permits, specifically
those which incorporate provisions of the Clean Air Act (CAA), 42
U.S.C. § 7401 et seq. The CAA requires the EPA to establish
regulations for “air quality standards.” Section 7410 requires each
state to develop an implementation plan (SIP) that describes the
manner in which the state will achieve the national minimum
standards on air pollution. The LDEQ was established to ensure
Louisiana’s compliance with environmental regulations, including the
air quality mandates. See La. R.S. 30:2011. LDEQ issues permits
which impose limits on the quantities of air pollution that a source
can emit. La. Admin. Code 33:III §507.
Under 42 U.S.C § 7413, the federal government is charged with
enforcement of SIP’s and air quality permits, which have the effect
of federal law. The permits issued by the LDEQ are enforced by the
8
State of Louisiana. Georgia Gulf claims that its LDEQ permit is
“merely a grant of authority to discharge, not a contract setting
forth obligations owed to and/or from the Government.” However,
Bain makes the wholly conclusory argument on appeal that the permit
is or should be considered a contract with the government, though
that was not alleged or suggested in the complaint or amended
complaint.
Bain argues that this court should interpret a potential fine
or monetary penalty, such as those to which Georgia Gulf could be
subject for causing emissions precluded by the CAA or the SIP and
in circumstances or quantities not authorized by its permit, as an
“obligation” to the government within the meaning of the statute.
However, Georgia Gulf argues that such a potential fine or penalty
cannot be the basis for a reverse false claims action. The United
States, as amicus, although taking a somewhat broader general view
of section 3729(a)(7) than does Georgia Gulf, nevertheless asserts
that a potential fine that may be imposed upon a person simply for
performing an act that the government has defined as unlawful or
prohibited is not an “obligation” within the meaning of section
3729(a)(7). Therefore, the government argues, the avoidance of such
a potential fine or civil penalty in the present situation does not
give rise to reverse false claims liability. We agree that, at
least in these circumstances, there is no reverse false claims
liability.
9
A. Standard of Review
Dismissals for failure to state a claim under FRCP 12(b)(6) are
reviewed de novo. Cousin v. Small, 325 F.3d 627, 631 (5th Cir.
2003). A district court cannot dismiss a complaint for failure to
state a claim “unless it appears beyond doubt that the plaintiff can
prove no set of facts that would entitle him to relief.” United
States, ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d
899, 901 (5th Cir. 1997). “However, conclusory allegations or legal
conclusions masquerading as factual conclusions will not suffice to
prevent a motion to dismiss.” Jones v. Alcoa, Inc., 339 F.3d 359,
362 (5th Cir. 2003) (internal quotation marks and citation omitted).
B. Discussion
Bain alleges that Georgia Gulf submitted false emissions
records in an attempt to avoid a fine or monetary penalty to which
Georgia Gulf might have been subject if the government had known of
the actual emissions and then decided to seek fines or civil
penalties against the company. The district court agreed with this
interpretation, holding that the relator’s complaint stated a cause
of action under section 3729(a)(7). The court held that, as Bain
had asserted, the “‘obligation to pay’ . . . the Government” was
satisfied by the performance of an unlawful act that may result in
a fine or monetary penalty.
Neither the complaint nor the amended complaint alleges, and
Bain does not contend, that at any time at or after the making of
10
the herein complained of false statements any fine or penalty, with
respect to the emissions allegedly misrepresented by such
statements, had ever been imposed on Georgia Gulf or that any
proceeding seeking to impose, or to determine whether to impose, any
such fine or penalty was ever pending or instituted.
Georgia Gulf argues that the FCA section at issue, section
3729(a)(7), should be read so that potential fines or penalties
cannot form the basis of an FCA reverse claim. In support of its
argument, Georgia Gulf principally relies on United States, ex rel.
American Textile Mfrs. Inst., Inc. v. The Limited, Inc., 190 F.3d
729, 736 (6th Cir. 1999) (“a reverse false claim action cannot
proceed without proof that the defendant made a false record or
statement at a time that the defendant owed to the government an
obligation sufficiently certain to give rise to an action of debt
at common law”); and United States v. Q International Courier, Inc.,
131 F.3d 770, 774 (8th Cir. 1997) (Quick) (holding that under the
FCA an obligation “must be for a fixed sum that is immediately
due”).
Georgia Gulf contends that, following the reasoning of American
Textile (ATMI), a defendant must have made or submitted a false
record at the time that the defendant owed an obligation to the
government sufficiently certain to give rise to an action of debt
11
at common law.4 ATMI, 190 F.3d at 736. The Sixth Circuit in ATMI
based its decision in part on Quick, but also referred to the
difference between a “claim” and an “obligation.” The court stated,
“‘[c]laims’ encompass requests for payment not only based on
contracts, but also because of the many privileges and benefits
doled out by the government. When seen in context, the Act’s use
of ‘obligation’ suggests a more limited meaning . . . .” 190 F.3d
at 736. In Quick, the court held that in order to prevail, the
government must show that there was an “existing, specific legal
duty in the nature of a debt that Quick or the other defendants owed
the United States at the time of their [violative] activities.”5
4
Although this court has not yet addressed the
interpretation of section 3729(a)(7), a district court within
this circuit recently issued an opinion that expressly followed
the reasoning laid out by the Sixth and Eighth Circuits. U.S. ex
rel. Graves v. ITT Educational Services, 284 F. Supp. 2d 487, 508-
09 (S.D. Tex. 2003). That court dismissed the relator’s claim
under section 3729(a)(7), holding that “a government contractor’s
potential liability for fines or sanctions that might be imposed
at some indefinite point in the future, in some indefinite
amount, is not an ‘obligation to pay’ under § 3729(a)(7). Even
if the government’s sanctions for noncompliance could include the
ability to sue for reimbursement of previously funded monies,
that potential does not arise to an ‘obligation to pay’ that
would support a reverse” FCA claim. Id.
5
In Quick, a mail courier was alleged to have engaged in an
illegal international remailing scheme, by taking letters out of
the U.S. to Barbados, and then mailing them back into the U.S.,
achieving significant postage cost savings. In that case, the
government did not allege a true contract with the defendants,
but rather relied upon statutes and regulations to establish that
the defendants owed a duty to pay full domestic postage. The
court held that the statues and regulations cited by the
government could show that the defendants engaged in fraud, but
they did not “create a legal duty for the defendants to pay
12
Georgia Gulf agrees with these readings of the statute, contending
that a defendant must have made a false record at the time that the
defendant owed an obligation to the government sufficiently certain
to give rise to an action of debt at common law.
On the other hand, Bain argues that potential fines and
penalties should be considered “obligations” for the purposes of
section 3729(a)(7). To bolster his argument, Bain relies on the
opinion in United States v. Neifert-White Co., 88 S. Ct. 959 (1968),
for the proposition that Congress desired the FCA to be given a
broad reading and “intended [it] to reach all types of fraud,
without qualification, that might result in financial loss to the
Government.”6 Although that case was decided well before the 1986
domestic postage.” 131 F.3d at 773.
In Quick the court relied in part on the portions of the
legislative history to the 1986 amendments to FCA which (among
other things) added the reverse false claims provision of §
3729(a)(7), PL 99-562 § 2, 100 Stat. 3153 (October 27, 1986),
indicating that the false statement contemplated is one relating
to money “owed” the government. Quick, 131 F.3d at 773. The
Senate Report concerning PL 99-562 notes that the subcommittee
added a provision “that 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” (emphasis added) and in its “section-by-section
analysis” states:
“Section 1, paragraph (7) of the bill amends section
3729 to provide that an individual who makes a material
misrepresentation to avoid paying money owed the
Government would be equally liable under the Act as if
he had submitted a false claim to receive money.”
S. Rep. No. 99-345 at 15, 18 (1986), reprinted in 1986
U.S.C.C.A.N. 5266 at 5280, 5283 (emphasis added).
6
The Court in that case held that the FCA should apply to a
false statement made in an application for a government loan,
13
legislation which, among other things, added the section 3279(a)(7)
reverse False Claims Act provision, P.L. 99-562, § 2, 100 Stat. 3153
(October 27, 1986), the above passage from Neifert-White was quoted
with approval in the legislative history of section 3179(a)(7). See
S. Rep. No. 99-345 at 19 (1986), reprinted in 1986 U.S.C.C.A.N. 5266
at 5284. Following this reasoning, the district court held that in
submitting false records and documents, Georgia Gulf prevented the
government from collecting fines or penalties that it could have
imposed and received if the records had been accurate, and therefore
Bain stated a claim.
Bain also cites United States v. Pemco Aeroplex, Inc., 195 F.3d
1234, 1237 (11th Cir. 1999), for the proposition that the existence
of a need for further government action before an obligation is
liquidated does not preclude a reverse false claims action. In that
case, the court found that a reverse false claim existed when the
defendant had an existing agreement with the government, in the form
of an actual contract, that created “a specific legal obligation at
that time to dispose of any excess property in accordance with the
government’s instructions.” The Eleventh Circuit distinguished
Quick because that case did not involve a government contract, and
held that a potential obligation satisfied the requirements of
section 3729(a)(7). See also United States ex rel. Sequoia Orange
because the statute “reaches beyond ‘claims’ which might be
legally enforced, to all fraudulent attempts to cause the
Government to pay out sums of money.” Id. at 962.
14
Co. v. Oxnard Lemon Co., 1992 WL 795477 (E.D.Cal. May 4, 1992)
(violation of an administrative enforcement statute constituted an
obligation);7 United States v. McGinnis, Inc., 1994 WL 799421
(S.D.Ohio Oct. 26, 1994) (defendant’s failure to report and record
pollution discharge as required by the Clean Water Act supported a
reverse false claim; however, this case has been superseded by
ATMI).
The United States, as amicus herein, takes the position that
the statute does not require that there always be a specific fixed
legal obligation at the time the alleged false record or statement
was made. According to the government, there are essentially two
ways an obligation within the meaning of section 3729(a)(7) could
arise: “First, there may be a fixed obligation, spelled out by a
judgment, contract, statute, or regulation, that imposes a duty on
the person to pay money or transmit property to the government.
This fixed obligation may be liquidated, as with a judgment, or it
may be unliquidated but easily determinable, as with the tariffs or
fees due on imported goods. Avoidance of a fixed obligation is
indisputably a sufficient condition supporting a reverse false
7
Although it was called into question by the Sixth Circuit
in ATMI , this Ninth Circuit district court case supports Bain’s
contentions, holding that potential fines and forfeitures against
which the defendant allegedly insulated itself through false
reporting were covered by section 3729(a)(7), and that the
assertion that an “obligation to pay” should only encompass money
owed to the government under a contract for goods, services,
concessions or other benefits was unduly restrictive and contrary
to the intent of Congress.
15
claims action under section 3729(a)(7).” The government goes on to
state that (contrary to Georgia Gulf’s contention) such an existing
“fixed obligation” is not always necessary to state a reverse claim,
provided that the obligation avoided, though only contingent, is one
which arises out of an economic or financial relationship, typically
contractual, between the government and the defendant under which
the government provides some benefit to the defendant wholly or
partially in exchange for an expected payment or transfer of
property by or on behalf of the defendant to (or for the economic
benefit of) the government.8 However, the government urges that an
8
In this connection the government notes the reference in
the legislative history to a “potential” claim, citing the
following language from page 18 of the Senate Report: “The
question of whether the False Claims Act covers situations where,
by means of false financial statements or accounting reports, a
person attempts to defeat or reduce the amount of a claim or
potential claim by the United States against him, has been the
subject of differing judicial interpretations.” S. Rep. No. 99-
345 at 18, 1986 U.S.C.C.A.N. 5266 at 5283 (emphasis added). The
Senate Report next goes on to note that fraudulently filing a
false income tax return showing less taxes owing than are due had
been held not a false claim, in contrast to filing a fraudulent
claim for tax refund, which had been held to be a false claim.
The Report indicates the intention not to make the former an
actionable reverse false claim. Id. The Report next addresses
“contract or lease arrangement cases” in which some courts had
held that “a person’s fraudulent attempt to reduce the amount
payable by him to the United States was considered not to
constitute a violation of the False Claims Act.” It contrasted
those cases to the “better reasoned result” in Smith v. United
States, 287 F.2d 299 (5th Cir. 1961), where we held that a lessee
from the government whose lease obligated it to “remit quarterly
to . . . [the government] as rent the excess of the lessee’s
revenues from the project over its operation expenses,” and to
submit quarterly reports of its said revenues and expenses,
violated the False Claims Act by submitting a report which
falsely inflated expenses and thus falsely reduced the amount of
16
environmental permit such as that involved here does not give rise
to such an economic type relationship and that “there is no free-
floating obligation actionable under the False Claims Act that
arises merely because a person must obey the law” or the terms of
a regulatory permit, and that “the False Claims Act does not apply
when the false statements at issue merely conceal the fact that the
person making the statement engaged in criminal or otherwise
unlawful conduct, and therefore might properly be subject to fines,
penalties, or forfeitures,” citing Quick, 131 F.3d at 774, and ATMI,
190 F.3d at 739-40.
It is unclear to us precisely what in other contexts the
operational differences would be between the government’s position
and that of the Sixth and Eighth Circuits in ATMI and Quick. We
note that section 3729(a)(7) applies not only to the defendant who
“makes” a false statement or record but also to one who knowingly
“uses” (or causes to be used) such a statement or record for the
prohibited purpose. Thus, if the defendant, for the prohibited
purpose, knowingly uses (or causes to be used) a false statement to
reduce the amount of a then matured and owing fixed obligation “to
rent paid (and showed as owing). The context indicates that the
reverse false claims provision was intended by the Committee to
make sure that the Smith result, rather than the contrary result
in the other “contract or lease arrangement cases,” would be
applied in the False Claims Act. See 1986 U.S.C.C.A.N. 5266 at
5284 (Committee “included this amendment to resolve the current
split in the case law relating to such material
misrepresentations.”).
17
pay or transmit money or property to the Government,” it would not
seem to matter that when the statement was made the obligation was
merely contingent and unfixed. If this is so, much of the
government’s concern about some of the expressions in ATMI and Quick
might be alleviated. For purposes of deciding this case, however,
we need not, and do not, choose between the approach of the
government and that of ATMI and Quick, much of which the government
agrees with.
It is clear to us that, as the government argues, the reverse
false claims act does not extend to the potential or contingent
obligations to pay the government fines or penalties which have not
been levied or assessed (and as to which no formal proceedings to
do so have been instituted) and which do not arise out of an
economic relationship between the government and the defendant (such
as a lease or a contract or the like) under which the government
provides some benefit to the defendant wholly or partially in
exchange for an agreed or expected payment or transfer of property
by (or on behalf of) the defendant to (or for the economic benefit
of) the government. Nothing in the complaint or amended complaint
even suggests that Georgia Gulf had any sort of contractual or other
economic relationship with the government, or indeed any
relationship at all other than having a permit authorizing certain
PVC emissions. Any such relationship was obviously purely
regulatory, and not one in which any economic or financial transfer
18
or payment by Georgia Gulf to the government was contemplated. The
permit obviously contemplated that Georgia Gulf would not make
otherwise precluded PVC emissions in amounts or circumstances other
than as authorized by the permit, not that Georgia Gulf would pay
the government for PVC emissions. Georgia Gulf, in common with all
others, was obligated to obey the law, including the Clean Air Act
and the regulations pursuant thereto, and if it did not it could be
subjected (as alleged in the amended complaint) to “statutory fines
and penalties,” but the mere contingent potential that such fines
or penalties might be (but had not been) sought and imposed does not
constitute “an obligation to pay or transmit money or property to
the Government” within the meaning of section 3729(a)(7). Nor does
anything in the legislative history, which speaks of money “owed”
the government and addresses obligations arising under “contract or
lease arrangement[s],” suggest a broader reading of “obligation.”
See notes 5 and 8 supra.
Accordingly, we hold that the district court erred in its
ruling that the complaint, as amended, stated a claim under section
3729(a)(7).
3. Emission Reduction Credits (ERCs)
In his amended complaint, Bain for the first time added
allegations to the effect that the submission of false or fraudulent
records allowed Georgia Gulf to obtain ERCs, which allegedly are a
thing of value and could be transferred for consideration. Georgia
19
Gulf counters that Bain’s ERC claim must fail because he did not
sufficiently allege that Georgia Gulf made any false claims to
obtain payment from the government.9
After Bain filed his amended complaint, Georgia Gulf did not
file another motion to dismiss, and the district court did not
address the ERC allegations in its ruling. Rather, the district
court held that Bain did state a claim under the reverse FCA, and
denied the motion to dismiss. Georgia Gulf then filed a motion to
reconsider the denial of the motion to dismiss and filed a motion
for summary judgment. In its motion for reconsideration, Georgia
Gulf raised the other district court holding concerning section
3729(a)(7) in Dow, and based on that case, the district court in the
case sub judice certified its ruling.
This case was certified for interlocutory appeal on the
district court’s initial order denying the 12(b)(6) motion, which
was filed after the amended complaint, but addressed only Georgia
Gulf’s motion that was filed before the amended complaint existed.
Therefore, we hold that the question of whether Georgia Gulf
violated the FCA by submitting false records and thereby obtaining
ERCs is not encompassed within the certified orders, and in any
event, would better be addressed in the first instance by the
9
This ERC claim would not fall under § 3729(a)(7) as a
reverse false claim, and rather must be examined, under
subsections (a)(1) or (2).
20
district court.10
Conclusion
For the foregoing reasons, the district court’s denial of
Georgia Gulf’s 12(b)(6) motion directed to the section 3729(a)(7)
claim is REVERSED and the case is REMANDED to the district court for
proceedings consistent with this opinion.
REVERSED and REMANDED.
10
We also note that it is questionable whether Bain has
complied with 31 U.S.C. § 3730(b)(2) & (4) with respect to the
alleged § 3729(a)(1) and/or (2) false claim concerning ERCs, a
matter alleged for the first time in Bain’s amended complaint,
which was filed well after the government’s November 8, 2001
notice of election to decline intervention. There is no
indication that the government was ever served with “written
disclosure of all material evidence and information” Bain
possessed in respect to that claim.
With respect to Georgia Gulf’s motion for summary judgment,
it was denied “without prejudice” on the ground that Georgia Gulf
“failed to comply with the procedures set forth in Rule 56.” It
is not properly before us.
21