Gadsden Industrial Park, LLC v. United States ( 2018 )

In the United States Court of Federal Claims
No. 13-924L
(Filed: January 5, 2018)
NOT FOR PUBLICATION
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GADSDEN INDUSTRIAL PARK, LLC, Attorney fees; False Claims
Act, 31 U.S.C. § 3729(b)(1)
Plaintiff, (2012); Equal Access to
Justice Act, 28 U.S.C. §
v. 2412(d) (2012); whether
defendant’s counterclaim
THE UNITED STATES, was substantially justified.
Defendant.
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Edward I. Levicoff, Pittsburgh, PA, for plaintiff.
Eric John Singley, United States Department of Justice, Civil Division,
Commercial Litigation Branch, Washington, DC, for defendant.
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OPINION ON ATTORNEY FEES
_______________
BRUGGINK, Judge.
On August 18, 2017, we entered judgment for plaintiff Gadsden
Industrial Park, LLC (“GIP”) with respect to defendant’s counterclaim.
Currently pending is plaintiff’s motion for an award of attorney fees under the
Equal Access to Justice Act, 28 U.S.C. § 2412(d) (2012) (“EAJA”). The
matter is fully briefed and oral argument is deemed unnecessary. Because the
government was substantially justified in asserting its counterclaim, plaintiff’s
motion is denied.
GIP initiated its claim as a Fifth Amendment takings claim. It asserted
that the government, operating through the Environmental Protection Agency
(“EPA”), took plaintiff’s personalty located at a former steel mill site during
a Comprehensive Environmental Response, Compensation, and Liability Act1
(“CERCLA”) operation. The former mill operator had gone into bankruptcy,
and GIP later acquired approximately twenty-five miles of railroad track
traversing the site from an entity that had purchased the assets from the
bankruptcy estate. Defendant was permitted to amend its answer to assert a
fraud counterclaim, in which it contended that counsel for GIP made materially
false statements to the EPA in asserting GIP’s demand for compensation for
the track it alleged was taken in violation of the False Claims Act, 31 U.S.C.
§ 3729(b)(1) (2012).
On January 30, 2017, defendant filed a motion for summary judgment
on GIP’s affirmative claim, and plaintiff later indicated its intent not to dispute
the motion. Accordingly, the court granted defendant’s motion for summary
judgment on March 31, 2017, but deferred entry of final judgment due to the
pendency of the counterclaim. We then set the matter for trial, which was held
on June 30, 2017. At the conclusion of trial, the court announced its decision
to deny the counterclaim, a ruling that was confirmed by an order dated August
18, 2017. The plaintiff thereafter filed its request for fees under EAJA. The
facts recited below are drawn from our prior ruling on the merits of the
counterclaim.
BACKGROUND
GIP is a limited liability company formed by the Casey family, which
operates a business in Pennsylvania, Casey Equipment, which primarily buys
and sells equipment and parts associated with the steelmaking industry. GIP
is an independent entity formed for the sole purpose of owning and operating
an industrial park in Gadsden, Alabama. Don Casey, founder of Casey
Equipment, is the managing partner of GIP. He testified at trial.
The land and buildings that form the principal assets of GIP were
purchased directly or indirectly out of the bankruptcy estate of Gulf States
Steel, which, along with its predecessors, had operated a steel mill in Gadsden,
Alabama, for decades. The track at issue in plaintiff’s claim is part of a much
larger rail system. GIP purchased 420 acres of land underlying most of the
1
42 U.S.C. §§ 9601-9675 (2012).
2
track from an overall site of approximately 761 acres. It also acquired track
on an adjoining parcel of land, but it did not purchase the land underlying that
stretch of track (referred to hereafter as the “excluded property”). The
excluded property was the site of multiple piles of slag and waste material that
had accumulated during the life of the steel mill. There were at least six spur
lines leaving the main mill site that terminated on the excluded property. The
spur lines are denominated HS-1, HS-2, and HN-1 through HN-4 and run
roughly parallel to each other in an east-west direction and all tie into a main
line running north-south. Only HS-1, HS-2, and HN-1, which are
predominately on the excluded property, were at issue in this case. In addition
to purchasing track on the excluded property, plaintiff obtained the right to
mine the slag piles there.
The twenty-five miles of track, only a portion of which is at issue here,
was originally purchased from the bankruptcy estate by the Williams Family
Limited Partnership (“WFLP”) in 2001. WFLP quickly entered into the
business of storing railcars on the track. After GIP purchased the underlying
real estate for much of the track, WFLP began splitting some of its revenue
from its railcar storage business with GIP. In December of 2005, GIP
purchased, among other things, all of the railroad track that WFLP owned, and
soon after GIP continued to use it to store railcars. At the time of trial, GIP
was still engaged in the railcar storage business.
The bankruptcy and subsequent disposition of Gulf States Steel’s assets
coincided with the EPA’s attempt to pursue an environmental cleanup at the
site under the authority of CERCLA. As part of the environmental cleanup,
CMC, Inc., a contractor for the EPA, was tasked with reducing the size of the
north and south slag piles on the excluded property. Harsco Corporation,
another EPA contractor, processed the material from the piles, which involved
using a magnet to separate out ferrous metallic material that could be sold as
recyclable scrap. In separate litigation, plaintiff is pursuing claims against the
United States regarding its asserted rights in that material. See Gadsden Indus.
Park, LLC v. United States, Fed. Cl. No. 10-757. After the recyclable scrap
was removed by Harsco Corporation, large amounts of nonmarketable material
remained, some of which ended up covering portions of the spur lines that GIP
believed it owned.2
2
In separate litigation in the United States District Court for the Northern
District of Alabama, GIP pursued a conversion claim against CMC, Inc. and
3
During its clean up efforts on the excluded property, EPA removed
portions of HS-1 and HS-2 and covered part of HN-1. Prior to this time, GIP
had not used these spur lines as part of its railcar storage business. It had,
however, used the nearby HN-2 and HN-3 spur lines to store railcars before
EPA arrived on site. GIP’s site manager, Jerry Stephens—who, with the
exception of a period of nine months, had worked on the Gulf States Steel site
since 1966—notified Mr. Casey about the removal and burial of the HS-1, HS-
2, and HN-1 rails. Mr. Casey, who was based out of Pittsburgh, then asked
Mr. Stephens to measure the amount of track that was taken or covered. Mr.
Casey also asked Mr. Stephens whether the rail lines at issue had ever been
used. Mr. Stephens told Mr. Casey that the spur lines had been used in the
past. At trial, Mr. Stephens explained that his answer to Mr. Casey’s question
was with respect to all the spur lines on that part of the property, not just the
spurs that are at issue. Mr. Stephens further explained at trial that, for roughly
a two-year period in the early 2000s, the spur lines at issue were used by a
company referred to as “Regional” to load railcars with scrap from the piles in
an apparent effort to recycle the material for the benefit of the bankruptcy
estate.
On July 19, 2013, after speaking with Mr. Casey, counsel for GIP wrote
a letter to Susan Capel, associate regional counsel for EPA, claiming that the
agency’s CERCLA activities had “converted” approximately one mile of track
on the excluded property. The letter asserted that
GIP owned a number of spurs which GIP used to store railroad
cars. The installed track therefore possessed inherent value, but
it also possessed additional value as it was being used. GIP is
entitled to have the track replaced as it was, or alternatively is
entitled to the full value of the track as installed. GIP’s
estimates to replace the track . . . reflect roughly $240,000 for
the material, and $120,000 for installation. That amounts to
roughly $360,000. There will also be grading needed for the re-
Harsco Corporation for the same rail that it alleges in this action that the
government took. On August 5, 2016, the district court issued a memorandum
opinion ruling against GIP, holding that the track at issue was a fixture and
that, under Alabama state law, a claim for conversion could not be brought for
a fixture. Gadsden Indus. Park, LLC v. CMC, Inc., 4:14-CV-39-KOB, 2016
WL 4158138 (N.D. Ala. Aug. 5, 2016).
4
installation of the track. We estimate that grading will cost
another $3,800.
DX 6 at 13.3 Defendant contends that the assertion by counsel that the spurs
were used to store railroad cars was false. Plaintiff concedes that this
statement is inaccurate to the extent that it suggests the spurs for which
compensation was being claimed were then being used to store railroad cars.
When she received this letter, Ms. Capel emailed counsel for GIP,
questioning GIP’s use of the track, among other things. When GIP’s counsel
relayed the EPA’s concerns to Mr. Casey, Mr. Casey made no further inquiry.
When asked at trial why he did not follow up with Mr. Stevens, Mr. Casey
testified:
I’m busy. I get probably 50 emails a day. I had phone calls,
interruptions. So I sort of have to balance my time. If I think
something’s an emergency or something’s very important, I do
it. If I think it’s not so important, I don’t do it. . . . [i]n this case,
I didn’t see [it as] necessary . . . to recall Jerry.
Trial Transcript (“Tr.”) 159-60. Mr. Casey further testified that he still wanted
the track replaced after he learned that GIP was not using the tracks to store
railcars at that time.
On August 26, 2013, GIP’s counsel responded to Ms. Capel with a
second letter, repeating the claim that GIP used the spur lines at issue:
You previously stated your belief that GIP did not use any of the
track that is now covered, since you believed that the track had
been completely covered ‘for decades’. That, too, is not correct.
GIP did use all three lines. I am advised that perhaps Gulf
States Steel had previously covered the ties. However, I am told
that the rail was definitely not covered prior to the EPA’s
involvement on-site, and indeed was operable, and being
operated by GIP.
3
“DX” refers to admitted exhibits offer by defendant; “PX” refers to admitted
exhibits offered by plaintiff.
5
Id. at 15 (emphasis in the original). Plaintiff concedes that the assertion of
current use of the spurs was inaccurate.
On May 1, 2015, the government filed an amended answer to include
its counterclaims under the False Claims Act, 31 U.S.C. §§ 3729-3733. On
May 19, 2017, the court issued an order granting two motions in limine filed
by GIP, which, inter alia, had the effect of reducing the government’s ability
to pursue two false claims—one for each letter—to just one.
At the conclusion of trial, we ruled against the United States. We were
unable to find that GIP acted in reckless disregard to the falsity of the claim
that it used the spur lines at issue to store railcars and found that GIP’s
statement regarding the current storage of railcars stemmed from a
miscommunication between Mr. Casey and Mr. Stephens—both of whom we
found to be credible witnesses. Gadsden Indus. Park, LLC v. United States,
Fed. Cl. No. 13-924, at *6 (Aug. 18, 2017). The incorrect statement found its
way into the letter after Mr. Casey asked Mr. Stephens whether the spur lines
had been used. Mr. Stephens, considering all the spur lines on the eastern,
excluded portion of the property and not just those at issue, answered that the
track had been used and that the track was usable. As he explained at trial, Mr.
Stephens did not distinguish in his answer between types of use or specific
tracks. HS-1, HS-2, and HN-1, the tracks at issue here, had indeed been used
to carry off scrap by a company mining the slag piles as recently as 2002.
Also, the nearby HN-2 and HN-3 rail spurs were used to store railcars up until
EPA arrived on site. In Mr. Stephens’ mind, all five spur lines were suitable
for storage, and that suitability ended when three of the tracks were covered
or pulled up. While GIP’s statement was not literally true, it would have been
immaterial to the company; the track had been useable and no longer was. We
concluded that the incorrect statement that GIP was then presently storing cars
on HS-1, HS-2, and HN-1, stemming from this miscommunication, was not
made with reckless disregard for the truth.
The second GIP letter presented a closer question. Although we held
that Mr. Casey should have followed up directly with Mr. Stevens after Ms.
Capel challenged the veracity of GIP’s initial statements, we declined to find
that his failure to do so rose to the level of recklessness. Mr. Casey knew that
GIP stored a number of railcars across the property and, relying on his initial
conversation with Mr. Stevens, assumed that the track at issue was being used
as part of GIP’s larger operation. Because GIP was not at full capacity at the
time, Mr. Casey’s understanding was incorrect. However, even though the
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spurs were not being used at the time, it was GIP’s desire to use the spurs if the
need for more storage capacity arose, and it had in fact done so. Mr. Casey
viewed it as a single operation in which the track is fungible. His desire was
to have the track replaced in order to increase the capacity of his railcar storage
business to the level that he believed he purchased from WFLP. Under the
circumstances, Mr. Casey’s assumption that he knew as much as he needed to
know about GIP’s use of the track did not rise to the level of reckless fraud.
Accordingly, we held that plaintiff was not liable for a civil penalty
under the False Claims Act, 31 U.S.C. § 3729(b)(1). Pending is plaintiff’s
motion for reimbursement of attorney fees and costs under EAJA, 28 U.S.C.
§ 2412(d).
DISCUSSION
There is a general presumption in American jurisprudence that even
successful litigating parties absorb their own fees and expenses. The exception
plaintiff relies on in EAJA consists of three elements: that 1) as a corporation,
plaintiff has a net worth less than $7,000,000 and fewer than 500 employees;
2) that the government’s position was not substantially justified; and 3) that
special circumstances do not make a shifting of fees inappropriate. Id.
Defendant contends that plaintiff has not established any of these
elements. Although plaintiff offers the affidavit of Mr. Donald Casey to the
effect that GIP has fewer than 500 employees and a net worth less than
$7,000,000, defendant questions that the litigation expenses were actually born
by the corporation. Defendant suggests that they were absorbed by Mr. Casey
himself, who it suggests has not made a similar assertion as to personal
entities.
It is unnecessary for us to decide whether plaintiff has established the
first and third elements of the test because we are satisfied that it cannot meet
the second. Defendant’s litigating position here was substantially justified
within the meaning of EAJA.
Plaintiff, of course, was unsuccessful on its affirmative claim. Indeed
it did not even dispute defendant’s motion for summary judgment in that
respect. The question is whether the court’s rejection of the False Claims Act
counterclaim warrants shifting fees incurred unique to the defense against the
counterclaim. It does not. The government had ample reason to assert its
7
counterclaim. As plaintiff admitted, the factual assertions put forward by
plaintiff’s counsel on behalf of GIP were inaccurate, material, and repeated
despite agency questioning. Defendant thus had no difficulty presenting
evidence that plaintiff put forward a claim for payment which was false. We
preserved the counterclaim for trial primarily on the issue of scienter, which
the court believed should be ventilated through testimony and examination.
Ultimately we ruled in favor of plaintiff that it did not act with reckless
disregard of the possibility of falsehood, but that was in spite of, not because
of, the paper record, which presented sufficient grounds for the government to
assert its counterclaim. The government was acting responsibly in pursuing
the counterclaim.4
CONCLUSION
Because the government was substantially justified in asserting its
counterclaim, we deny plaintiff’s motion for attorney fees and costs. The Clerk
is directed to enter judgment for defendant. No costs.
s/Eric G. Bruggink
ERIC G. BRUGGINK
Senior Judge
4
Plaintiff’s assertion that government counsel acted in bad faith by filing the
counterclaim is nonsense, as is much of the exaggerated prose in its briefing.
8