Thomas Berg v. Honeywell International

FILED
NOT FOR PUBLICATION JUN 24 2014
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
THOMAS A. BERG; et al., No. 13-35617
Plaintiffs - Appellants, D.C. No. 3:07-cv-00215-JWS
v.
MEMORANDUM*
HONEYWELL INTERNATIONAL, INC.
And HONEYWELL, INC.,
Defendants - Appellees.
Appeal from the United States District Court
for the District of Alaska
John W. Sedwick, District Judge, Presiding
Argued and Submitted June 3, 2014
Anchorage, Alaska
Before: WALLACE, WARDLAW, and CHRISTEN, Circuit Judges.
In this qui tam action under the False Claims Act (FCA), Thomas Berg and
three other plaintiffs (collectively, “the Relators”) allege that Honeywell, Inc.
(“Honeywell”) knowingly submitted fraudulent energy baseline estimates to induce
the U.S. Army to contract with it to overhaul the energy production system at Fort
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Richardson, Alaska. The Relators appeal from the district court’s dismissal of their
action, which dismissed their First Amended Complaint (FAC) and denied their
motion for leave to amend the complaint. We have jurisdiction pursuant to 28
U.S.C. § 1291. We affirm in part, reverse in part, and remand.
1. The district court did not err in concluding that the FAC fails to plead
Honeywell’s alleged fraud with sufficient particularity to satisfy Federal Rule of
Civil Procedure 9(b). The FAC does not provide enough “particularized
supporting detail” to put Honeywell on notice of the specific conduct it must
defend. Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001). The FAC
generally alleges that Honeywell knowingly falsified its calculations of existing
“baseline” energy costs at Fort Richardson and fraudulently projected savings it
knew it could not achieve. But the FAC fails to allege how Honeywell did so.
2. The district court abused its discretion by denying leave to amend on
the sole basis that any amendment would be futile. Denial of leave to amend on
the grounds of futility is improper unless it is “clear . . . that the complaint could
not be saved by any amendment.” United States ex rel. Lee v. Corinthian Colls.,
655 F.3d 984, 995 (9th Cir. 2011) (emphasis added) (internal quotation marks
omitted). The Relators’ proposed Second Amended Complaint (SAC) and their
previously submitted declarations set forth sufficient factual detail to properly
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plead an FCA fraud-in-the-inducement claim under Rule 9(b). See United States
ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166, 1173 (9th Cir. 2006). The SAC
and the declarations explain how Honeywell allegedly falsified its estimates—for
instance, by overwriting Department of Energy software to include non-standard
values for heat infiltration—and identify specific individuals allegedly aware of the
fraud from its inception. The record contains sufficient factual allegations for the
Relators to plead the “who, what, when, where, and how” of the alleged fraud.
Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1998). The Relators would be well
served, however, to consolidate all of the relevant material in one concise pleading
that omits extraneous allegations of mere “[b]ad math.” Wang v. FMC Corp., 975
F.2d 1412, 1420 (9th Cir. 1992).
The possibility that Honeywell may prevail at a later stage of this litigation
under the so-called government knowledge defense to FCA liability does not
support the conclusion that the Relators’ complaint cannot be saved by any
amendment. Government officials’ knowledge of a claim’s falsity is not a defense
to liability, but it may be “highly relevant” in demonstrating that the government
contractor “did not submit its claim in deliberate ignorance or reckless disregard of
the truth.” United States ex rel. Hagood v. Sonoma Cnty. Water Agency, 929 F.2d
1416, 1421 (9th Cir. 1991). This is a fact-specific inquiry that requires the court to
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draw inferences from evidence in the record. See Hooper v. Lockheed Martin
Corp., 688 F.3d 1037, 1051 (9th Cir. 2012). It is therefore appropriate “at the
summary judgment stage or after trial,” United States ex rel. Butler v. Hughes
Helicopters, Inc., 71 F.3d 321, 327 (9th Cir. 1995), not at the motion to dismiss
stage.
We decline Honeywell’s invitation at oral argument to affirm the denial of
leave to amend on the alternative basis that any amendment would be futile
because the Relators cannot state a plausible claim for relief. See Alvarez v.
Chevron Corp., 656 F.3d 925, 930–31 (9th Cir. 2011). Honeywell argues that,
because it could not be paid under an Energy Savings Performance Contract
without achieving savings, the allegation that it fraudulently projected savings it
knew it could not achieve is inherently illogical. The Relators allege, however,
that Honeywell believed from the outset that the Army would eventually
renegotiate the contract on terms more favorable to Honeywell even if no savings
were initially realized. This theory is not implausible.
Each party shall bear its own costs.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
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