United States Ex Rel. Bahrani v. Conagra, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
PU BL ISH
October 12, 2006
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
UNITED STATES O F A M ERICA, ex
rel., A LI B AHRANI,
Plaintiff-A ppellant,
v. No. 04-1407
CONAG RA, INC.; CONAG RA
FO O D S, IN C.; C ON A G RA H IDE
DIVISION ; CO NA GR A B EEF
COM PANY; and M ONTFORT, IN C.,
Defendants-Appellees.
U N ITED STA TES O F A M ER ICA,
Amicus Curiae.
A PPEA L FR OM TH E U NITED STA TES D ISTR IC T C OU RT FO R TH E
D ISTR IC T O F C OLO RA DO
(D.C. No. 00-K-1077(PAC))
G. Bryan Ulmer, III, The Spence Law Firm, LLC, Jackson, W yoming (George
Harold Parker, Jr., Dedolph & Parker, LLC, Fort Collins, Colorado, with him on
the briefs), for the Plaintiff-Appellant.
Darrel G. W aas, Otten, Johnson, Robinson, Neff & Ragonetti, P.C., Denver
Colorado (Patricia C. Campbell, Otten, Johnson, Robinson, Neff & Ragonetti,
P.C.; Edward G. W arin, M cGrath, North, M ullin, & Kratz, P.C., L.L.O., Omaha,
Nebraska; and Carol C. Payne, Vinson & Elkins, L.L.P, Dallas, Texas, with him on
the brief), for the D efendants-Appellees.
Peter D. Keisler, Assistant Attorney General, Douglas N. Letter, A ppellate
Litigation Counsel, M ichael D. Granston and Alan E. Kleinburd, Attorneys, Civil
Division, United States Department of Justice, W ashington D.C., for amicus
curiae, the United States of America.
Before H E N RY, M cKA Y, and T YM KOVICH, Circuit Judges.
H EN RY , Circuit Judge.
Ali Bahrani filed this reverse false claims action against his former
employer Conagra, and its related corporations, which are engaged in exporting
meat products and animal hides. He alleged that employees at Conagra’s Greeley,
Colorado office routinely altered export certificates issued by the United States
Department of Agriculture (USD A) in order to avoid obtaining replacement
certificates for which the company should have paid a fee, in violation of the
reverse false claims provision of the False Claims Act, 31 U.S.C. § 3729(a)(7).
M r. Bahrani maintained that by altering the export certificates, Conagra employees
“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).
The district court granted summary judgment to Conagra, reasoning that
Conagra’s alleged “obligation” to obtain the replacement certificates was not
“quantifiable and existing before the allegedly fraudulent acts taken to avoid it.”
See U nited States ex rel. B ahrani v. Conagra, Inc., 338 F. Supp. 2d 1202, 1207 (D .
2
Colo. 2004). W e disagree with the district court’s reasoning. The record indicates
that, as to a certain class of errors and omissions in export certificates— those
deemed “major” or “significant”— the USDA required Conagra to obtain
replacement certificates and pay the accompanying fee. In our view, that
requirement is sufficient to constitute an “obligation” under § 3729(a)(7). Because
we are not persuaded by Conagra’s arguments that we affirm on alternative
grounds, we vacate the district court’s grant of summary judgment and remand for
further proceedings.
I. BACKGROUND
W e begin w ith an overview of U SDA regulations governing export
certificates. Then, we summarize M r. Bahrani’s allegations, the applicable
provision of the False Claims Act, 31 U.S.C. § 3729(a)(7), and the grounds for the
district court’s grant of summary judgment to Conagra. W e view the record in the
light most favorable to M r. Bahrani. See Terra Venture, Inc. v. JDN Real Estate
Overland Park, L.P., 443 F.3d 1240, 1243 (10th Cir. 2006).
A. USDA Export Certificates
To facilitate and promote foreign trade and to protect the food supply, the
USDA provides certificates to companies that export animal products. These
export certificates are part of a comprehensive scheme administered by the Food
3
Safety and Inspection Service (“the Food Inspection Service”), which regulates
meat exports, and the Animal Plant Health Inspection Safety Service (“the Animal
Inspection Service”), which regulates hide exports. See 9 C.F.R. §§ 130, 156, 307,
322.2, 350, 351, 390. The regulations are authorized by the Federal M eat
Inspection Act, 21 U.S.C. §§ 601-695, the Poultry Products Inspection Act, 21
U.S.C. §§ 451-471, and the Agricultural M arketing Act, 7 U.S.C.§§ 1621-27.
Under the Food Inspection Service regulations, exporters are required to
obtain certificates from USD A inspectors for each shipment. Each certificate has
a unique serial number and states the shipment’s destination, the exporter, the
consignee, and the number and kinds of products it contains. 9 C.F.R. § 322.2.
The destination may affect the content of the certificates: some countries require
more information than the Food Inspection Service does, and, in those instances,
the USD A provides exporters with certificates that comply with those other
countries’ requirements.
The Animal Inspection Service regulations contain a similar provision
addressing certificates for exports of animal hides. 9 C.F.R. § 156.3. In contrast
to the Food Inspection Service regulations, the Animal Inspection Service
regulations do not require a certificate for every shipment. However, some foreign
countries do require certificates, and the Animal Inspection Service regulations
provide that exporters shipping hides to those countries may obtain a certificate
from an inspector.
4
The Food Inspection Service and the Animal Inspection Service both charge
fees for the certificates. The Food Inspection Service’s export certificate fee is
based upon the time expended by its inspectors for providing information over and
above the minimum certification requirements set forth by federal law. See 9
C.F.R. §§ 307.4–307.6, 322.2, 391.1–391.3. In contrast, the Animal Inspection
Service charges a flat fee (currently $32). See id. § 130.20. The purpose of the
fee is to reimburse the government for the costs incurred.
Occasionally, an exporter may discover inaccuracies in an export certificate
after it has been issued by a U SDA inspector. There may be typographical errors
or more substantive deficiencies involving matters such as the grade of beef or the
destination of the product. In those instances, the inspectors’ practice has been to
make corrections on the original certificate themselves, authorize those corrections
to be made by the exporters, or to issue a new certificate. The Food Inspection
Service’s regulations expressly provide for such new certificates. See id. §
322.2(c) (setting forth the requirements for “in lieu of” certificates). The Animal
Inspection Service’s regulations do not contain a similar provision. However, the
record indicates that, in certain instances, its inspectors do issue replacement
certificates when the original certificates are inaccurate. Although there is not a
separate provision addressing the payment of fees for these “in lieu of” and
replacement certificates, the parties do not dispute that the regulations authorize
the Food Inspection Service and the Animal Inspection Service to charge fees for
5
them.
The regulations do not set forth a standard for determining when these “in
lieu of” and replacement certificates are required. However, both parties have
submitted affidavits— from USD A officials and a Conagra employee— agreeing
that these certificates are required when the original certificate contains significant
errors or omissions. See Aplt’s App. vol. I, at 101 (affidavit of Dr. M ark T.
M ina, M r. Bahrani’s expert, stating that new certificates are required for “major”
changes); Aple’s Supp. App. vol. II, at 375 (affidavit of Brad Schmeh, Conagra’s
expert, stating that new certificates are required in “situations where the customer
needs an entirely different shipment or if the w eights used for the hides are
completely wrong as opposed to one digit being incorrect or transposed”); id. at
385 (affidavit of M ariana Lambert, Conagra’s Letter of Credit M anager, stating
that new certificates are required for “changes to the product information, which
would include changes to the number of pelts or pieces, the type of hide, or the
weight . . . [or] significant changes to the identification information, including
entirely different container numbers or significant changes to the port of loading
or port of discharge”); id., at 475 (affidavit of D r. Claude N elson, Conagra’s
expert, stating that new certificates are required when “the customer needs an
entirely different shipment, or if the weights used for the hides are completely
wrong or the consignee is different from on the original certificate, as opposed to
one digit being incorrect or transposed”); id. at 278 (affidavit of D r. Robert
6
Fetzner, Conagra’s expert, stating that new certificates are not required if the
changes are “minor”).
B. M r. Bahrani’s Allegations
From 1996 to 1998, M r. Bahrani worked as a document coordinator at
Conagra’s Greeley, Colorado facility. According to M r. Bahrani, when Conagra
employees discovered errors and omissions in export certificates, they routinely
altered the original certificates or forged new certificates, rather than obtaining “in
lieu of” or replacement certificates. Based on his personal experience and
information from co-workers, M r. Bahrani maintained that Conagra employees
altered more than 200 export certificates per w eek, and that they followed this
practice at the company’s Greeley facility and at other locations for at least ten
years preceding the commencement of this action. According to M r. Bahrani, by
altering the original certificates, Conagra employees avoided the fees that the
company would have been required to pay for new certificates. Thus, he asserted,
he w as entitled to damages under the reverse false claims provision of the False
Claims Act, 31 U.S.C. § 3729(a)(7).
C. The False Claims Act
Congress passed the original False Claims Act in 1863 “to combat rampant
fraud in Civil W ar defense contracts.” S. Rep. No. 99-345, at 8, reprinted in 1986
7
U.S.C.C.A.N. 5266, 5273 (1986). “The Supreme Court has given the statute an
expansive reading,” Am. Textile M frs. Inst., Inc. v. The Limited, Inc., 190 F.3d
729, 733 (6th Cir. 1999), observing that it “covers all fraudulent attempts to cause
the Government to pay out sums of money.” United States v. Neifert-W hite Co.,
390 U.S. 228, 232-33 (1968).
In order “to enhance the Government’s ability to recover losses sustained as
a result of fraud against the Government,” S. Rep. No. 99-345, at 1 (1986),
reprinted in 1986 U.S.C.C.A.N. 5266, the Act was amended in 1986. The
“grow ing pervasiveness of fraud necessitate[d] modernization of the G overnment’s
primary litigative tool.” Id. at 2, 1986 U.S.C.C.A.N. at 5266.
Section 3729(a)(7), the reverse false claims provision at issue in this case, is
one of these new “litigative tool[s].” It provides that any person who
knowingly makes, uses, or causes to be made or used, a
false record or statem ent to conceal, avoid, or decrease an
obligation to pay or transm it money or property to the
Government,
is liable to the United States G overnment 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(a)(7) (emphasis added). This section was added “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 18, 1986 U.S.C.C.A.N. at
8
5283. Section 3729(a)(7) is described as a “reverse false claims” provision
“because the financial obligation that is the subject of the fraud flows in the
opposite of the usual direction.” United States ex rel. Huangyan Imp. & Exp.
Corp. v. Nature’s Farm Prods., Inc., 370 F. Supp. 2d 993, 998 (N .D. Cal. 2005).
The provision may be enforced either by the Attorney General or by a private qui
tam relator suing on the government’s behalf. 31 U.S.C. § 3730(a), (b)(1).
Congress did not provide a definition of an “obligation” under § 3729(a)(7).
However, despite the fact that “[i]n the abstract, an obligation can be legal, moral
or social,” see United States ex rel. S. Prawer & Co. v. Verrill & Dana, 946 F.
Supp. 87, 93-94 (D. M e. 1996), courts have defined the term more narrowly. This
circuit has stated that the plaintiff is required to allege that the defendant “had ‘an
existing legal obligation to pay or transmit money or property to the government.’”
Kennard v. Constock Res. Inc., 363 F.3d 1039, 1048 (10th Cir. 2004) (quoting
United States v. Pemco Aeroplex, Inc., 195 F.3d 1234, 1236-37 (11th Cir. 1999))
(emphasis added) (other internal quotation marks omitted).
There is widespread agreement that the making or using of the false record
or statement is not sufficient in itself to create an obligation under § 3729(a)(7).
Am. Textile M frs., 190 F.3d at 736 (stating that “[w]here an obligation arises if
and only if a defendant makes a false statement or files a false claim . . . an action
under the False Claims Act will not lie”). Instead, the obligation must arise from
some independent legal duty. See id. (“[W ]hatever the scope of the phrase
9
‘obligation to pay or transmit money or property to the Government,’ a plaintiff
may not state a reverse false claim unless the pertinent obligation attached before
the defendant made or used the false record or statement.”) (internal citation
omitted); United States v. Q Int’l Courier, Inc., 131 F.3d 770, 773 (8th Cir. 1997)
(“To recover under the False Claims Act, we believe that the U nited States 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.”);
Huangyan Imp. & Exp., 370 F. Supp. 2d at 1000 (characterizing § 3729(a)(7)
obligations as “existing debts” and adding that, under the Sixth Circuit’s reasoning
in American Textile M anufacturers, “the emphasis is not so much on the timing of
the obligation as on its source” ).
M oreover, the fact that the making or using of a false statement or record
might result in a fine or a penalty is insufficient to establish a § 3729(a)(7)
obligation. United States ex rel. Bain v. Georgia Gulf Corp., 386 F.3d 648, 657
(5th Cir. 2004) (stating that § 3729(a)(7) “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”)); Am.
Textile M frs., 190 F.3d at 738 (stating that § 3729(a)(7) does not apply to
“contingent obligations[,] includ[ing] those arising from civil and criminal
10
penalties that impose monetary fines after a finding of wrongdoing: as opposed to
quasi-contractual obligations created by statute or regulation” and those that
“attach only after the exercise of administrative or prosecutorial discretion, and
often after a selection from a range of penalties”); Q Int’l, 131 F.2d at 773
(stating that § 3729(a)(7) does not apply to “attempts to avoid potential fines or
sanctions”); Huangyan Imp. & Exp., 370 F. Supp. 2d at 1000 (stating that
“potential obligations--fines, penalties and the like--that are contingent upon the
exercise of some discretion or intervening act by the government are not properly
the subject of a suit under [§ 3729(a)(7)]”).
There are two primary reasons w hy potential fines and penalties are not §
3729(a)(7) obligations. First, to apply the statute in that context would unduly
broaden it. See Am. Textile M frs., 190 F.3d at 739 (noting the “incredible scope”
of “permitting suits against any person who makes a false statement to the federal
government that he did not commit a statutory or regulatory violation that might
have led to the imposition of a fine, payment of liquidated damages, imposition of
a tax, or forfeiture of property”). Second, the discretion vested in prosecutors and
other government officials to determine w hether to seek fines or penalties renders
the alleged “obligation” contingent and thus beyond the reach of the statute. See
Bain, 386 F.3d at 657; Am. Textile M frs., 190 F.3d at 739.
Q International illustrates the kind of obligation that is not encompassed by
§ 3729(a)(7). To take advantage of differences between domestic and
11
international postage rates, the defendant corporation transferred bulk mail from
the United States to Barbados for the purpose of remailing the letters individually
back into the United States (a practice known as “ABA remail”). The United
States Postal Service charged Barbados’s postal service as little as one-tenth of the
amount that it charged for the same first-class delivery of mail within the United
States.
The Eighth Circuit held that no actionable “obligation” was involved.
“[T]he statutes and regulations that the United States cites might well support a
judgment that one or more of the defendants engaged in illegal and fraudulent
activity, but those statutes and regulations do not create a legal duty for the
defendants to pay domestic postage.” Q Int’l, 131 F.3d at 773.
Similarly, in American Textile M anufacturers, a national trade association
alleged that a corporation had mislabeled Chinese products as coming from Hong
Kong or M acau. The plaintiff contended that the mislabeling violated several
statutes prohibiting the use of false documents and imposing penalties. According
to the plaintiff, “each customs violation created an obligation to pay money to the
government” and “the allegedly-false entry documents served to ‘conceal, avoid,
or decrease’ the obligations.” 190 F.3d at 734 (quoting § 3729(a)(7)).
In rejecting the plaintiff’s assertion that, by mislabeling the goods, the
defendant corporation avoided an “obligation,” the Sixth Circuit first noted that
the alleged obligation did not exist before the defendant made the allegedly false
12
statements. The court also characterized the alleged violations of the statutes at
issue as “[c]ontingent obligations”— those that “will arise only after the exercise
of discretion by government actors.” Id. at 738. Nevertheless, the Sixth Circuit
did suggest that a statute or a regulation might create a § 3729(a)(7) “obligation,”
“at least w here the statute or regulation imposes an obligation essentially
contractual in nature, such as the imposition of the requirement that those using
the Postal Service pay the appropriate rate.” Id. at 737-38 (internal quotation
marks omitted).
In contrast to Q International and American Textile M anufacturers, United
States v. Pemco Aeroplex, Inc., 195 F.3d 1234 (11th Cir. 1999) (en banc), involves
an “obligation” sufficient to support a reverse false claim action. A contract
between the government and an aircraft maintenance company required the
company to advise the government when it was holding property in excess of the
requirements of the contract and to make appropriate arrangements to dispose of
it— for example by agreeing to purchase the property or to return it to the
government. In a reverse false claims action, the government alleged that the
maintenance company had submitted an inventory sheet with false information that
led the government to undervalue the purchase price that the company should pay
for airplane wings. Reversing a panel decision, the en banc court held that the
company had “a contractual obligation to account for the full value of any excess
government property” sufficient to support a reverse false claim action under §
13
3729(a)(7). Id. at 1237. The fact that the parties had not agreed on a specific
purchase price for the wings was not dispositive. Id.
These decisions establish a dichotomy between “existing debts,” w hich are
covered by the statute, and “contingent penalties,” which are not. See Huangyan
Imp. & Exp., 370 F. Supp. 2d at 1000. Here, in M r. Bahrani’s reverse false claims
action against Conagra, we must decide how to characterize an exporter’s
obtaining “in lieu of” and replacement certificates and paying the accompanying
fee.
D. The District Court’s Decision
In granting summary judgment to Conagra, the district court concluded that
the statutes and regulations invoked by M r. Bahrani did not establish that the
company was obligated to pay for “in lieu of” or replacement certificates: “None
of the statutory or regulatory provisions cited in Bahrani’s argument or in his
supplemental filings . . . establishes that an exporter is required to obtain a
replacement certificate every time a change to an existing certificate is made.”
Bahrani, 338 F. Supp. 2d at 1207. M oreover, the court said, even if the
regulations required Conagra to obtain new certificates when it discovered errors
and omissions, “the act of altering the certificate (rather than requesting a
replacement) is not an actionable reverse false claim because that obligation arises
only as a result of that act and did not exist before.” Id. (citing Am. Textile M frs.,
14
190 F.3d at 738-39). Finally, the fact that USDA inspectors could exercise their
discretion not to require “in lieu of” or replacement certificates indicated that
Conagra’s “obligation” was a contingent one, and thus not covered by §
3729(a)(7). Id. at 1207-08.
II. DISCUSSION
On appeal, M r. Bahrani challenges the district court’s conclusion that
Conagra’s failure to obtain “in lieu of” and replacement certificates did not
constitute an “obligation” under § 3729(a)(7). He also argues that the district
court erred by not considering one of his allegations.
Conagra defends the district court’s analysis of what constitutes a §
3729(a)(7) obligation and argues in the alternative that the court’s grant of
summary judgment should be affirmed because (1) its employees merely corrected
certificates and did not make false statements; (2) the allegedly false certificates
were not presented to the government; and (3) M r. Bahrani was not an “original
source” of the allegations against Conagra.
W e review the grant of summary judgment de novo. Holt v. Grand Lake
M ental Health Ctr., Inc., 443 F.3d 762, 765 (10th Cir. 2006). Summary judgment
is appropriate when there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
The court must examine the record to determine whether any genuine issue of
15
material fact is in dispute, and must construe the facts and reasonable inferences
drawn therefrom in the light most favorable to the nonmoving party. Holt, 443
F.3d at 765. “If there is no genuine issue of material fact in dispute, we determine
whether the district court correctly applied the substantive law.” Simms v. Okla.
ex rel. Dep’t of M ental Health & Substance Abuse Servs., 165 F.3d 1321, 1326
(10th Cir. 1999).
A. M r. Bahrani’s Arguments
W e begin with M r. Bahrani’s challenges to the district court’s grant of
summary judgment. He maintains that: (1) the U SDA regulations require
exporters to obtain new certificates and pay the accompanying fees when changes
must be made after the certificates are signed; (2) by making changes to the
original certificates, Conagra employees avoided an existing “obligation” under §
3729(a)(7); and (3) contrary to the district court’s reasoning, the discretion vested
in USDA officials does not establish that the fees for new certificates are
contingent obligations outside the scope of § 3729(a)(7). M r. Bahrani also argues
that (4) the district court failed to consider his independent claim that Conagra’s
employees also violated § 3729(a)(7) by failing to return original certificates to
the USD A when changes were necessary. W e consider each argument in turn.
16
1. The USDA regulations
M r. B ahrani first challenges the district court’s conclusion that the USDA
regulations do not create a § 3729(a)(7) obligation to obtain “in lieu of” or
replacement certificates. He maintains that “every time Conagra alters, changes or
corrects USDA export certificates it avoids paying set and established monetary
fees to the government.” Aplt’s Br. at 47 (emphasis in original). In support of
this argument, he relies on Food Inspection Service Directive 9000.1 and the
affidavit of a former USD A veterinarian, Dr. M ark M ina.
According to M r. Bahrani, Directive 9000.1 provides that “a certifying
official can only initial minor erasures or alterations before signing the
certificate.” Id. at 42. (internal quotation marks omitted). He continues, “The
certifying official has only this one opportunity to approve minor alterations after
which any discretion he may have had to approve changes is forever extinguished.
There are no provisions allowing the certifying official to approve and initial
changes after the certificate is signed.” Id. at 42-43.
Like the district court, we are not persuaded by M r. Bahrani’s reading of the
Directive. The relevant sections provide:
IX. Export Certificates
A. The certifying official receives the appropriate completed
export certificate and a copy of the certified application from the
exporter. The certifying official verifies that the information on the
certificate is the same as the information on the application. If the
certifying official has concerns about the information on the application
17
or the certificate, he or she contacts the inspection program employee
who signed the application or the exporter to address any concerns.
B. Before signing the certificate, the certifying official:
1. Checks the certificate for accuracy and corrections.
2. C hecks for attachments and lines-out any unused
space.
3. Unless not acceptable to a foreign country, initials
minor erasures or alterations . . . .
X. Replacement Certificates
A. A certificate replacing an original certificate is a re-
certification of the product’s condition at the time of the
initial export certification. A replacement certificate for a
lot does not represent the lot’s current condition. A
replacement certificate may be issued in situations, such as,
but not limited to:
1. The original certificate did not carry the required
information.
2. The original certificate carried incorrect information.
3. The name of the consignee or exporter has changed.
4. The certificate has been lost.
B. The replacement certificate must be dated with the same
date as that shown on the original certificate.
....
Aplt’s App. vol. I, at 53-54. Although Directive 9000.1 provides a nonexclusive
list of circumstances in which new certificates may be issued, we can find no
language that establishes a standard for determining when an exporter is required
18
to obtain a replacement certificate or that bars a USD A inspector from making
corrections to a certificate after it has been signed.
The other authority invoked by M r. Bahrani— Dr. M ina’s affidavit—
similarly does not support the theory that new certificates are required every time
a correction must be made. Dr. M ina does state that:
Because of the need to maintain the integrity of the U SDA export
certificates for both animal meats and byproducts (including hides), any
change, correction, or alteration made to a U SD A export certificate after
it has been signed by a USD A official is serious and improper. It does
not matter what information is changed by a third party (non-U SD A
official) after the export certificate is signed, just the fact that someone
other than the USD A has injected himself/herself into the documentation
process creates a breach of integrity in the export documentation
process. Any third party changes, including but not limited to changes
to correct typographical errors, to spell out an abbreviated word, to
change an address from a post office box to a street address, or to
change a weight, container, or identification number where some
numbers are transposed, are strictly forbidden, serious and improper.
Id. at 102-03 (emphasis added).
Nevertheless, Dr. M ina does not state that exporters are required to pay a
fee every time that changes must be made to a certificate after it has been signed
by a USD A inspector. Although he opines that “[n]o USD A employee has the
authority to give a third party permission to make any changes to export
certificates after they have been signed by USDA employees,” id. at 101 (emphasis
added), Dr. M ina further states that “[t]he proper procedure for making changes is
to inform the certifying official (inspector or DVM ) of the changes that need to be
made and the certifying official will initial the change, or if the changes are major,
19
he will issue a replacement or in lieu of certificate at the request of the exporter.”
Id. (emphasis added). Thus, no statement from Dr. M ina indicates that the
exporter is required obtain a new certificate and pay a fee when the changes are
minor.
Like the district court, we therefore do not agree w ith M r. Bahrani’s
expansive reading of the USDA statutes and regulations. “None of the . . .
authorities cited in [M r. Bahrani’s] argument . . . establishes that an exporter is
required to obtain a replacement certificate every time a change to an existing
certificate is made.” Bahrani, 338 F. Supp. 2d at 1206 (emphasis added). In
particular, if a certificate requires a minor change, there is no indication that the
exporter is required to obtain a new certificate and pay the accompanying fee.
Although an exporter’s making such minor changes to a certificate might subject it
to potential fines and penalties for altering a government certificate, see 21 U.S.C.
§§ 611, 676; 7 U.S.C. § 1622(h), these potential fines and penalties are not §
3729(a)(7) obligations. See Bain, 386 F.3d at 657; Am. Textile M frs., 190 F.3d at
738; Q Int’l, 131 F.2d at 773; see also Aplt’s Br. at 38-39 (acknowledging that the
statutes that establish penalties for impermissibly altering or using altered
certificates do not themselves establish § 3729(a)(7) obligations).
Nevertheless, we disagree with the conclusion draw n by the district court
from its rejection of M r. Bahrani’s interpretation. The fact that new certificates
are not required “every time a change to an existing certificate is made,” Bahrani,
20
338 F. Supp. 2d at 1206, does not foreclose the possibility that new certificates
(and the accompanying fees) are required in some instances. As we have noted,
those instances are described in similar ways by a variety of witnesses. Dr. M ina
states that new certificates are required when the changes are “major.” See Aplt’s
App. vol. I, at 100. Conagra’s witnesses state that new certificates are required
when “the customer needs an entirely different shipment or . . . the weights used
for the hides are completely wrong as opposed to one digit being incorrect or
transposed[;]” Aple’s Supp. App. vol. II, at 475; and when there are “changes to
the product information, which would include changes to the number of pelts or
pieces, the type of hide, or the weight . . . [or] significant changes to the
identification information, including entirely different container numbers or
significant changes to the port of loading or port of discharge[;]” id. at 385.
This agreed description of the circumstances in which the USD A requires
exporters to obtain new certificates is a plausible one. It adopts a
principle— materiality— that has been w idely employed in various circumstances,
including False Claims Act actions. See, e.g., United States ex rel. A+ H omecare,
Inc. v. M edshares M gmt. Group, Inc., 400 F.3d 428, 442 (6th Cir.) (holding that
“false statements or conduct must be material to the false or fraudulent claim to
hold a person civilly liable under the [False Claims A ct]”), cert. denied, 126 S. Ct.
727 (2005); Harrison v. W estinghouse Savannah River Co., 176 F.3d 776, 784 (4th
Cir. 1999) (stating that “[l]iability under each of the provisions of the False
21
Claims Act is subject to the further, judicially-imposed, requirement that the false
statement or claim be material” and that “[m]ateriality depends on whether the
false statement has a natural tendency to influence agency action or is capable of
influencing agency action”) (internal quotation marks omitted). Accordingly,
although the parties may dispute whether a particular change in a particular
certificate is significant enough to require issuance of an “in lieu of” or
replacement certificate, we conclude from this record that there is a certain class
of changes that do require such certificates. See Excel Corp. v. United States
Dep’t. of A gric., 397 F.3d 1285, 1296 (10th Cir. 2005) (stating that “we must
defer to both formal and informal agency interpretations of an ambiguous
regulation unless those interpretations are plainly erroneous or inconsistent with
the regulation”) (internal quotation marks omitted). Therefore, in examining the
parties’ other arguments, we consider whether Conagra’s alleged failure to obtain
new certificates in those instances (w here there were “major” or “significant”
changes) constituted the avoiding of an “obligation” under § 3729(a)(7).
2. O bligations Under § 3729(a)(7)
M r. Bahrani next challenges the district court’s conclusion that, even if the
USD A regulations require exporters to pay for “in lieu of” and replacement
certificates (a proposition we accept to the extent that the changes are “major” or
“significant”), that “obligation” is outside the scope of § 3729(a)(7). The
22
government has filed an amicus brief in w hich it agrees w ith M r. Bahrani’s
position.
According to the government, two kinds of obligations may be the subject
of a reverse false claims action under § 3729(a)(7):
(1) “[t]here 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[;]” Amicus Br. at 10;
and
(2) there are other obligations that are “not yet ‘fixed’ in all particulars”;
these “obligations” may be present “by virtue of the relationship between the
government and the person who owes the government money or property.” Id.
For example, such obligations may exist “[w]hen the person and the government
have a contractual, grantor-grantee, licensor-licensee, fee-based, or similar
relationship.” Id.
The government maintains that, accepting M r. Bahrani’s contention that the
USD A regulations require exporters to pay for new certificates when the original
certificates contain errors or omissions, the fees for the new certificates fall
within this second category of actionable § 3729(a)(7) obligations.
In response, Conagra notes that, at the time that an exporter determines that
a certificate contains errors or omissions, no payment is due the USD A. Instead,
23
payment is due only after (1) the exporter notifies the USD A of the errors and
omissions that need to be changed; (2) the USD A determines that “an in lieu of”
or replacement certificate is required; and (3) the USD A charges the established
fee. According to Conagra, these additional stages in the process indicate that,
when its employees made changes to the original export certificates, there was no
“obligation” to pay the fee for “in lieu of” or replacement certificates.
Conagra also advances several policy arguments challenging M r. Bahrani’s
and the government’s reading of the statute. It contends that the purpose of the
fees at issue is to reimburse the government for the cost of providing certification.
Yet, by allegedly failing to request “in lieu of” and replacement certificates, the
company did not cause the government to provide any services for w hich it should
have been reimbursed. Because the False Claims Act was enacted to protect the
government from financial losses, allowing M r. Bahrani to pursue his claims
would be inconsistent with the purpose of the statute. M oreover, Conagra
concludes, to allow M r. Bahrani to invoke the statute here would lead to an
unwarranted expansion of reverse false claim actions. Absent proof of loss to the
government, anyone challenging a failure to comply with a regulatory scheme
could file suit.
W e begin with the timing of the payment for export certificates. Like the
government, we think that it is significant that § 3729(a)(7) refers to “an
obligation” and not “a fixed obligation.” W e agree that there are instances in
24
which a party is required to pay money to the government, but, at the time the
obligation arises, the sum has not been precisely determined.
The obligation addressed by the Eleventh Circuit in Pemco Aeroplex, 195
F.3d at 1237-38, provides an illustration. There, the aircraft maintenance
company and the government had agreed that the government could elect to sell
excess property to the company. However, at the time that the company made the
allegedly false statements about the property’s values, the specific amount of the
company’s obligation had not yet been determined. Nevertheless, “[t]hat the
maintenance company offered to purchase the property and that a specific
purchase price had not yet been agreed upon at the time [the company] submitted
the inventory form are not the touchstone. . . . [S]ubmitting the inventory form
was just part of fulfilling [an] ongoing contractual obligation.” Id.; contra Q
Int’l, 131 F.3d at 774 (stating that “[a] debt, and thus an obligation under the
meaning of the False Claims A ct, must be for a fixed sum that is immediately
due”).
Additionally, to require a fixed monetary obligation as a prerequisite for a
reverse false claims action would be inconsistent with the broad remedial purpose
of the False Claims Act. See Neifert-W hite, 390 U.S. 228, 233 (1968) (noting
that “this remedial statute reaches beyond ‘claims’ w hich might be legally
enforced, to all fraudulent attempts to cause the Government to pay out sums of
money”). M oreover, other provisions of the statute have been construed to allow
25
actions to proceed even though the specific amount of the claim was not yet
determ ined at the time the false statement was made. See, e.g, Shaw v. AAA
Eng’g & Drafting, Inc., 213 F.3d 519, 530 (10th Cir. 2000) (affirming a judgment
for the plaintiff in a False Claim Act action under 31 U.S.C. § 3729(a)(1)-(2) that
was based upon the submission of fraudulent work orders and concluding that
“[s]imply because the production quantities recorded on the work orders did not
determine the exact amount of the settlement does not eradicate a connection
between the work orders and the [amount received by the defendant under the
government contract]”). W e therefore conclude that the fact that the fees for “in
lieu of” and replacement certificates are not paid when the an exporter determines
that the initial certificate contains errors or omissions does not foreclose recovery
under § 3729(a)(7).
Although a § 3729(a)(7) “obligation” need not be for a precise amount in
order to be actionable, we do agree with the district court and Conagra that the
obligation must arise from a source independent of “the allegedly fraudulent acts
taken to avoid it.” Bahrani, 338 F. Supp. 2d at 1207. That conclusion comports
with the Sixth and Eighth Circuit decisions in A merican. Textile M anufacturers
and Q International, both of which concluded on the facts before them that no
obligation existed independently of the alleged false statements themselves. See
Am. Textile M frs., 190 F.3d at 738-41 (concluding that, under the statutes at
issue, the defendant’s obligations arose only after the defendant made false
26
statements and “only because the government ha[d] prohibited an act”); Q Int’l,
131 F.3d at 773 (holding that, when the defendant engaged in the challenged
practice of “ABA remail,” it had no “obligation” to pay full domestic postage,
even though the practice might have violated other statutes).
However, unlike the district court, we view the alleged obligations at issue
in American Textile M anufacturers and Q International as distinguishable from
the obligation to pay fees for “in lieu of” and replacement certificates when major
or significant changes are necessary. Here, it is not Conagra employees’ making
of corrections on the original export certificates that creates the obligation to pay
the fee. Instead, that obligation arises from an independent source— from the
determination that the original certificate contains a major or significant error or
omission and that an “in lieu of” or replacement certificate and payment of the
accompanying fee are necessary. It is the discovery that these changes are
necessary that creates the obligation. In our view , the circumstances are
analogous to a motorist who attempts to avoid an annual fee by unlaw fully
altering the expiration date on a license plate. In that instance, it is not the
altering of the plate that generates the fee but rather an independent event— the
end of the yearly period.
As to Conagra’s contention that the alleged false statements have not
resulted in a loss to the government, we note that “there is no requirement in the
text [of § 3729(a)(7)] that the Government have an ongoing interest in the funds
27
or that the G overnment itself suffer a loss.” Kennard v. Comstock Resources,
Inc., 363 F.3d 1039, 1047 (10th Cir. 2004), cert. denied, 125 S. Ct. 2957 (2005).
Indeed, the legislative history of the reverse false claims provision indicates that
the kind of false certification alleged by M r. Bahrani falls within its scope:
The cost of fraud cannot always be measured in dollars and
cents, however. GAO pointed out in its 1981 report that fraud
erodes public confidence in governm ent’s ability to efficiently
and effectively manage its programs. Even in cases where there
is no dollar loss, for example where a defense contractor
certifies an untested part for quality yet there are no apparent
defects–the integrity of quality requirements in procurement
programs is seriously undermined.
S. Rep. No. 99-345, reprinted in 1986 U.S.C.C.A.N. 5266, 5268 (emphasis
added); see also United States v. Hughes, 585 F.2d 284, 286 n.1 (7th Cir. 1978)
(“A false claim is actionable under the Act even though the United States has
suffered no measurable damages from the claim.”); Fleming v. United States, 336
F.2d 475, 480 (10th Cir. 1964) (“Proof of damage to the Government resulting
from a false claim is not part of the Government’s case under the Act”).
3. USD A Discretion
W e also disagree w ith the district court that the discretion afforded USDA
officials to determine whether to issue new certificates and charge the
accompanying fees renders the obligation contingent and thus outside the scope of
§ 3729(a)(7). The district court based its narrow reading of the statute on
28
American Textile M anufacturers. and Q International. Both cases concluded that
a potential penalty that could only be assessed after a government official
exercised discretion was not an actionable § 3729(a)(7) obligation. In the Sixth
Circuit’s view, if such potential penalties constituted “obligations,” “reverse false
claims liability would attach to any person making any false statement to conceal
avoid, or decrease his potential criminal liability under a law that lists among a
range of penalties the imposition of a fine.” Am. Textile M frs., 190 F.3d at 739.
In addition to greatly expanding the scope of the False Claims Act, that
interpretation would require courts to speculate as to whether in a given case, a
government official would pursue an action to recover a penalty and whether such
penalties would actually be assessed. Id. at 740; see also Q Int’l, 131 F.3d at 774
(reasoning that “[a] potential penalty, on its own, does not create a common law
debt”).
Here, the fees for “in lieu of” and replacement certificates are best
characterized as user fees; they are not penalties. The fees must be paid in
limited circumstances, and they are thus distinguishable from the general
obligation to comply with statutes and regulations outside the scope of §
3729(a)(7). See Am. Textile M frs., 190 F.3d at 737-38 (stating that “Congress
may well have intended reverse false claims liability to extend to obligations
created by statute or regulation, at least where the statute or regulation imposes an
obligation essentially contractual in nature” but not deciding that question).
29
Thus, we are not convinced that an undue expansion of liability under the reverse
false claims provision will follow by characterizing as an “obligation” the
payment of the fees for new certificates when major or significant changes are
required.
W e acknowledge that there is some discretion in play here. Although the
parties do not discuss the process in much detail, Conagra has submitted an
affidavit from a former USD A official stating that if a certificate “needs to be
changed in some way after it is issued, the inspector in charge has discretion
under 9 C.F.R. § 322.2(c) to allow the exporter to make the change directly or,
instead, to require the issuance of a new or replacement certificate.” See Aple’s
Supp. App. vol. I, at 277 (affidavit of Dr. Robert Fetzner). M oreover, the official
continues, “[i]f a new or replacement certificate is required, the inspector has
discretion to charge a fee or not[,]” and “a fee would be charged only if the
inspector determined it w as necessary.” Id. at 277-78.
Nevertheless, we are not convinced that this alleged discretion takes the
obligation to pay the fees outside the scope of § 3729(a)(7). Some discretion
inheres in a wide variety of government decisions. For example, government
officials may have discretion as to whether to insist on a party’s performance
under a contract or whether to file a breach of contract action if a party does not
perform. However, a contractual obligation falls within the scope of §
3729(a)(7). See Pemco A eroplex, 195 F.3d at 1237 (concluding that a “specific,
30
ongoing obligation during the life of the contract” was covered by § 3729(a)(7));
Am. Textile M frs, 190 F.3d at 741 (“§ 3729(a)’s definition of ‘obligation’
certainly includes those arising from . . . breaches of government contracts”).
Here, evidence submitted by both M r. Bahrani and Conagra indicates that
w hen export certificates required “significant” or “major” changes, the USDA
required exporters to obtain “in lieu of” or replacement certificates. It was at that
point— when the changes became necessary— that the obligation arose. The fact
that USDA officials may have some subsequent discretion whether to actually
charge the authorized fee does not mean that the “obligation” is a contingent one
outside the scope of § 3729(a)(7). W e therefore agree with the government that
“the need for some further governmental action or some further process to
liquidate an obligation does not preclude a reverse false claims action.” Amicus
Br. at 12 n.2; see also id. at 14 (stating that “if, as alleged by [M r. Bahrani], the
regulations did not permit such alterations [of export certificates], but required
the issuance of a new certificate and payment of an additional fee, then any . . .
acts of USD A officials in either waiving the fee or refusing to enforce it could not
[render the fee] . . . discretionary or contingent.”).
That conclusion is supported by the terms of the statute, which address
“conceal[ing], reduc[ing], or avoid[ing] an obligation[,]” but do not specify the
result of those efforts. Thus, in determining whether a false statement is material
under § 3729(a)(7), the inquiry “focuses on the potential effect of the false
31
statement when it is made, not on the actual effect of the false statement when it
is discovered.” A+ H omecare, 400 F.3d at 445 (emphasis added) (internal
quotation marks omitted). The fact that a government official may subsequently
waive an established fee does not negate the “potential effect” of a false record or
statement.
4. Failure to Return O riginal Certificates
M r. Bahrani also maintains that the district court erred by not addressing
his allegation that Conagra employees violated § 3729(a)(7) by failing to return
the original certificates to the U SDA after they discovered that changes w ere
necessary. He cites a regulation that states that original certificates superseded by
“in lieu of” certificates, “shall, if available, be surrendered to the inspector in
charge.” 9 C.F.R. § 322.2(c). By making changes on the original certificates
instead of returning them, he continues, Conagra employees avoided an obligation
to “transmit . . . property to the Government.” 31 U.S.C. § 3729(a)(7).
W e are not persuaded that the district court erred in failing to consider this
theory. First, we agree with Conagra that M r. Bahrani did not adequately advance
this allegation in the district court proceedings. W hen the district court asked for
supplemental briefing from the parties on the question of the legal basis of
Conagra’s “obligation” under § 3729(a)(7), M r. Bahrani did not argue that this
alleged duty to return original certificates under the USD A regulations constituted
32
an independent claim. See Rios v. Ziglar, 398 F.3d 1201, 1209 (10th Cir. 2005)
(holding that the “[f]ailure to raise an issue in the district court generally
constitutes waiver”). Indeed, in explaining his view of Conagra’s “obligation,”
M r. Bahrani even made the following statement: “If something changes which
renders the original USD A certificate useless to Conagra, they can do several
things. They can throw it away; shred it; put it in a file never to see the light of
day, or return it to the USDA.” A plt’s A pp. vol. II, at 370. It was not until his
motion for reconsideration that M r. Bahrani sought to advance an independent
claim based on Conagra’s failure to return original certificates, see id., at 422,
and this eleventh-hour presentation is insufficient to preserve that claim. See
Steele v. Young, 11 F.3d 1518, 1520 n.1 (10th Cir. 1993).
In any event, had M r. Bahrani timely raised such an argument in the district
court, we are not convinced that these erroneous certificates constitute the kind of
“property” within the scope of § 3729(a)(7). M r. Bahrani cites no authority to
that effect, and applying the statute in this fashion would stretch it far beyond its
intended purpose.
B. Conagra’s Alternative Arguments for Affirmance
1. Alleged Lack of Evidence Regarding False Statements to the G overnment
Conagra maintains that the district court’s grant of summary judgment
should be affirmed on the alternative ground that its employees did not make false
33
statements to the government. In support of this contention, Conagra advances
two arguments. First, it contends that because employees made corrections to the
certificates, there were no false statements involved. Second, Conagra asserts, its
employees lacked the intent to defraud necessary to satisfy the scienter
requirements for a reverse false claims action. It maintains that “corrections to
the original but inaccurate certificates were authorized.” Aple’s Br. at 44.
W e are not persuaded by these arguments. As to the contention that
Conagra’s employees were correcting the export certificates, we note that it is not
merely making the corrections to the certificates that may be actionable under the
False Claims Act. Rather, it is the making of those corrections over the signature
and certification of a U SDA official who has not actually seen or approved those
changes.
Conagra’s alleged reliance on USDA officials to approve corrections to
original certificates similarly does not establish that its employees lacked the
necessary intent to violate the statute. Section 3729(a)(7) requires proof that the
defendant “knowingly” made, used, or caused to be made a false record or
statement to avoid an obligation. To act “knowingly” means that “a person, with
respect to information--(1) has actual knowledge of the information; (2) acts in
deliberate ignorance of the truth or falsity of the information; or (3) acts in
reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b).
“[N]o proof of specific intent to defraud is required.” Id.; see also United States
34
ex rel. Aakhus v. Dyncorp, Inc., 136 F.3d 676, 682 (10th Cir. 1998) (discussing
the “knowingly” requirement under § 3729(a)(7)). As w e have explained, it is
only the making of “major” or “significant” changes without obtaining “in lieu
of” or replacement certificates that establishes an actionable obligation under the
statute. Evidence in the record indicates that in some instances Conagra
employees made such changes without USD A approval and thus avoided the
obligation to pay a fee for “an lieu of” or replacement certificate. See Aplt’s
App. vol. I, at 75 (testimony from M r. Bahrani that a C onagra employee told him
that she changed the grade of beef from “no grade” to “choice”). That evidence
supports M r. Bahrani’s allegation that Conagra employees had the requisite
intent. M oreover, the question of whether the employees acted “knowingly”
concerns their knowledge at the time they made the major changes without
applying for new certificates. That USD A officials may have approved minor
changes or may have even waived the fees for some major changes does not
resolve the question of Conagra’s employees’ state of mind when the employees
made the changes.
2. Lack of presentment to the United States
Conagra also argues that the district court’s grant of summary judgment
should be affirmed on another alternative ground: that even accepting M r.
Bahrani’s allegations as true, Conagra employees never made any false
35
representations to the United States government (because the export certificates at
issue were presented only to foreign governments).
In support of this argument, Conagra invokes a statement in Kennard v.
Comstock Resources, 363 F.3d 1039, 1048 (10th Cir. 2004): that § 3729(a)(7)
“squarely encompasses the fraud on the government that occurs when a person or
entity makes false statements to the United States to avoid [an obligation].”
(emphasis added). Conagra also cites a district court case, W ilkins v. Ohio, 885
F. Supp. 1055 (E. D. Ohio 1995), in w hich the court dismissed a reverse false
claim action on the grounds that the plaintiff had not alleged that false
information was presented to the government. The court there relied on
legislative history. See id. at 1064 (“The Senate Report supports the conclusion
that in order to have a ‘reverse false claim,’ the government has to be made aware
of the false statement, misrepresentation or misleading omission in some fashion,
i.e., there has to be a ‘claim.’”). Conagra cites two unpublished cases that make
similar statements about presentment to the government. See Aple’s Br. at 46
(citing Stevens v. M cGinnis, No. C-193-442, U.S. Dist. Lexis 22109 (S.D. Ohio
Aug. 27, 1996) and Atkinson v. Pa. Shipbuilding Co., No. 94-7316, 2000 U.S.
Dist. Lexis 12081, at *80 (E.D. Pa. Aug. 24, 2000)).
In our view , these cases do not provide m uch support for Conagra’s
argument. This circuit’s statement in Kennard — that § 3729(a)(7) “squarely
encompasses the fraud on the government that occurs w hen a person or entity
36
makes false statements to the United States to avoid [an obligation],” 363 F.3d at
1048 (emphasis added)— does not restrict the scope of the statute to only those
instances in which statements are so made. M oreover, the district court cases
invoked by Conagra are not precedential and do not concern the kind of
regulatory scheme at issue here, one that involves the provision of government
services in exchange for payment of a fee.
Additionally, as M r. Bahrani argues in his reply brief, nothing in the
language of § 3729(a)(7) indicates that presentment to the government is required.
Other sections of the false claim statute do require presentment. See, e.g., §
3729(a)(1) (establishing liability for one who “knowingly presents, or causes to
be presented, to an officer or employee of the U nited States G overnment or a
member of the Armed Forces of the United States a false or fraudulent claim for
payment or approval”) (emphasis added); see also United States. ex rel. Koch v.
Koch Indus., 57 F. Supp. 2d 1122, 1144 (N.D. Okla. 1999) (“The bad act under
(a)(1) is the presenting of a false claim. The bad act under (a)(7) is the making or
using of a false statement or record. There is no “presentment” language in §
3729(a)(7).”) (emphasis added).
W e agree that § 3729(a)(7) does not require presentment to the United
States government, and Conagra is thus not entitled to summary judgment on that
ground either.
37
3. O riginal source requirement as to “meat-related” claims
As a final alternative ground for affirming the district court’s grant of
summary judgment, Conagra contends that M r. Bahrani is not an “original
source.” Conagra limits its argument to the part of the case that concerns
certificates for meat products.
Conagra’s argument is based upon 31 U.S.C. § 3730(e)(4)(A) & (B), which
provide:
(4)(A ) N o court shall have jurisdiction over an action
under this section based upon the public disclosure of
allegations or transactions in a criminal, civil, or
administrative hearing, in a congressional, administrative,
or G overnment Accounting Office report, hearing, audit,
or investigation, or from the new s media, unless the action
is brought by the Attorney General or the person bringing
the action is an original source of the information.
(B) For purposes of this paragraph, “original source”
means an individual who has direct and independent
knowledge of the information on which the allegations are
based and has voluntarily provided the information to the
Government before filing an action under this section
which is based on the information.
31 U.S.C. § 3730(e)(4)(A) & (B) (emphasis added).
At the summary judgment stage, application of this statutory language
involves a four-part inquiry: (1) whether the alleged “public disclosure” contains
allegations or transactions from one of the listed sources; (2) whether the alleged
disclosure has been made “public” within the meaning of the False Claims A ct;
(3) w hether the relator’s complaint is “based upon” this public disclosure; and, if
38
so, (4) w hether the relator qualifies as an “original source.” U nited States ex rel.
Fine v. M K-Ferguson Co., 99 F.3d 1538, 1544 (10th Cir. 1996). The burden is on
M r. Bahrani to show that he is an original source.” United States ex rel Stone v.
Rockwell Int’l Corp., 282 F.3d 787, 800-02 (10th Cir. 2002). However, a court
should address the first three public disclosure issues first. Id. Consideration of
the original source requirement is necessary only if the court answ ers the first
three questions affirmatively. M K-Ferguson, 99 F.3d at 1544.
Here, Conagra contends, the first two elements of the original source
defense are clearly established. M r. Bahrani reported his allegations to the
government in August 1999. However, prior to that time, these allegations had
been publically advanced in litigation, a government investigation, and media
reports.
In particular, in April 1999, in the “Kim litigation” in the Central District
of California, the defendants asserted counterclaims against Conagra alleging
improper alteration of meat export certificates. According to Conagra, M r.
Bahrani cooperated with the Kim defendants and their counsel, even to the point
of appearing voluntarily as a witness on their behalf. These allegations were
disclosed in a government investigation. The defendants in the Kim litigation
provided copies of allegedly altered export certificates to the USD A, which
caused the government to launch an extensive investigation into Conagra’s
practices. Finally, the allegations made in the Kim litigation were widely
39
published in the media.
As to the third element, whether the relator’s complaint is “based upon”
this public disclosure, Conagra notes that “[e]ven qui tam actions only partially
based upon publically disclosed allegations or transactions may be barred.”
United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038, 1051 (10th Cir.
2004), cert denied, 125 S. Ct. 2964 (2005). “The test is whether substantial
identity exists between the publically disclosed allegations or transactions and the
qui tam complaint.” Id. (internal quotation marks omitted). Here, Conagra
contends, “Bahrani’s meat-related claims closely mirror the allegations made in
the Kim [l]itigation which spawned the Government’s investigation and numerous
media reports.” A ple’s Br. at 51. According to Conagra, the identical issues are
addressed in this law suit, “namely whether the changes made to export
certificates were approved by the USD A or whether Conagra was required to
obtain replacement certificates.” Id.
Because these first three elements are satisfied, Conagra continues, M r.
Bahrani must establish that he was an “original source.” That means that (1) he
must have had direct and independent knowledge of the information on which the
allegations are based and (2) he must have voluntarily provided such information
to the government prior to filing suit. United States ex rel. Hafter D.O. v.
Spectrum Emergency Care, Inc., 190 F.3d 1156, 1160-61 (10th Cir. 1999).
Here, Conagra maintains, M r. Bahrani did not have direct and independent
40
knowledge of his meat-related claims because he worked in the Hides Division at
Conagra, not the M eat Products Division. M oreover, Conagra argues, M r.
Bahrani derived his knowledge from information made public from the Kim
litigation in California. For example, M r. Bahrani’s Second Amended Complaint
alleges that the alterations to meat export certificates began in 1991. However, he
did not begin working for Conagra until 1996, and has submitted no evidence
showing that he has any personal knowledge of relevant events preexisting his
employment. Conagra contends that M r. Bahrani “apparently used 1991 because
it was [on] that date that the Kim defendants claimed the alleged improper
practices began.” Aple’s Br. at 53. Also, Conagra notes, during the course of
this litigation, M r. Bahrani disclosed many documents that he had obtained from
the Kim litigation.
Finally, Conagra asserts, M r. Bahrani’s knowledge of meat-related export
certificates was “second-hand.” Id. at 54. M r. Bahrani did not state that he
personally altered meat certificates, nor, according to Conagra, did he know the
procedures related to meat certificates, or the significance of any alterations that
he did observe.
Upon review of the record, we are not persuaded by this alternative
argument for summary judgment. Assuming, without deciding, that Conagra has
established the first three elements of the inquiry, we conclude that M r. Bahrani
has submitted sufficient evidence to support his contention that he is an original
41
source. In particular, he has offered an affidavit stating that he personally
observed the alteration of export certificates while he worked for Conagra and
that he heard a supervisor authorizing such changes. W hen viewed in the light
most favorable to M r. Bahrani— the party opposing summary judgment— these
statements support his contention that he had “direct and independent knowledge
of the information on which [his] allegations are based” and that this knowledge
was “gained by [his] own efforts and not acquired from the labors of others.”
Grynberg, 389 F.3d at 1052 (internal quotation marks omitted). Additionally, M r.
Bahrani has also offered evidence indicating that he voluntarily disclosed these
observations to USD A investigators in August or September 1999, before he filed
this action. See Aple’s Supp. App. vol. I, at 237.
Accordingly, to the extent that M r. Bahrani’s allegations are based upon
personal observations that he disclosed to investigators, Conagra is not entitled to
summary judgment on this issue.
III. C ON CLU SIO N
As applied to these circumstances, we read § 3729(a)(7) more narrowly
than M r. Bahrani but more broadly than Conagra. Like the district court, we are
not persuaded that every change to a signed export certificate made by a Conagra
employee creates an “obligation” under the statute. However, to the extent that
Conagra employees made “major” or “significant” changes without applying for
42
“in lieu of” or replacement certificates, they avoided an obligation under §
3729(a)(7).
W e emphasize that the appropriate inquiry is certificate-specific. Because
of their interpretations of the regulatory scheme, both M r. Bahrani and Conagra
have advanced arguments that pertain to all changes to original export
certificates, no matter how extensive. In our view, however, whether a given
change to an original certificate triggers a § 3729(a)(7) obligation depends upon
the nature of the change— whether it is “major” or “significant” and thus requires
a new certificate. Although many of the unauthorized changes alleged by M r.
Bahrani appear to be minor, there is evidence that at least some of them fell
within the “major” or “significant” class. Further development of the record is
required to determine the extent to which Conagra employees made “major” or
“significant” changes without obtaining “in lieu of” or replacement certificates
and paying the accompanying fee.
Because Conagra’s alternative arguments in support of the district court’s
grant of summary judgment lack merit, we therefore V ACATE the district court’s
grant of summary judgment and REM AND for further proceedings consistent with
this opinion.
43