United States Ex Rel. Kasowitz Benson Torres LLP v. Basf Corp.

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 13, 2019 Decided July 5, 2019
No. 18-7123
UNITED STATES OF AMERICA, EX REL. KASOWITZ BENSON
TORRES LLP,
AND
KASOWITZ BENSON TORRES LLP,
APPELLANT
v.
BASF CORPORATION, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:16-cv-02269)
Andrew A. Davenport argued the cause for appellant.
With him on the briefs was Daniel Benson.
Gregory G. Garre argued the cause for appellees. On the
brief were Christopher Landau, Alice S. Fisher, Anne W.
Robinson, Alex Loomis, William F. Goodman III, Raymond
Cardozo, Brian A. Sutherland, Steven M. Bauer, Fred M.
Haston III, Lawrence S. Sher, and Seth A. Rosenthal. Ryan
Baasch entered an appearance.
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Before: HENDERSON, SRINIVASAN and PILLARD, Circuit
Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: “Pecunia
non satiat avaritiam, sed inritat” translates from Latin to
English as “money doesn’t satisfy greed; it stimulates it.”
This case teaches that money also stimulates legal artifice.
For over one hundred and fifty years, the False Claims Act
(FCA) has imposed civil liability on anyone who defrauds the
federal government of money or property. See generally Act
of March 2, 1863, ch. 67, 12 Stat. 696 (1863) (codified as
amended at 31 U.S.C. §§ 3729 et seq.). A third party—a
relator—may bring an FCA lawsuit on behalf of the
government and collect a substantial bounty if he prevails.
See 31 U.S.C. § 3730(b), (d). Today we review a relator’s
novel theory of FCA liability.
The law firm Kasowitz Benson Torres LLP (Kasowitz)
alleges that a handful of large chemical manufacturers violated
the Toxic Substances Control Act, Pub. L. No. 94-469, 90 Stat.
2003 (1976) (codified as amended at 15 U.S.C. §§ 2601 et seq.)
(TSCA), by repeatedly failing to inform the United States
Environmental Protection Agency (EPA) of information
regarding the dangers of isocyanate chemicals. Kasowitz
claims the defendant-chemical manufacturers’ failure to
disclose and subsequent actions deprived the government of
property (substantial risk information) and money (TSCA civil
penalties and contract damages). Kasowitz demands billions
of dollars in damages, even though the government openly
supports the defendants. The district court dismissed its
lawsuit. Kasowitz now appeals, asking us to become the first
court to recognize FCA liability based on the defendants’
failure to meet a TSCA reporting requirement and on their
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failure to pay an unassessed TSCA penalty. We decline the
invitation and affirm the dismissal.
I. BACKGROUND
TSCA requires a chemical manufacturer, inter alia, to
inform the EPA of substantial risk information—that is,
“information which reasonably supports the conclusion that [a]
substance or mixture presents a substantial risk of injury to
health or the environment.” 15 U.S.C. § 2607(e). TSCA
authorizes the EPA to take administrative action against any
individual or entity that violates the duty to disclose and to
impose a civil penalty on a violator. Id. § 2615(a)(2)(A)–(C).
As part of its role in implementing TSCA, the EPA established
the Compliance Audit Program, a “one-time voluntary
compliance program designed to strongly encourage
companies to voluntarily audit their files” and disclose
substantial risk information. Registration and Agreement for
TSCA Section 8(e) Compliance Audit Program, 56 Fed. Reg.
4128, 4129 (Feb. 1, 1991). The EPA offered a reduced civil
penalty for any tardy disclosure made under the Program and
reserved the right to “take appropriate enforcement action”
against a violator. Id. The Compliance Audit Program was
in effect from 1991 to 1996. See TSCA Section 8(e);
Notification of Substantial Risk; Policy Clarification and
Reporting Guidance, 68 Fed. Reg. 33,129, 33,131 (June 3,
2003) (The “EPA reached final settlements with CAP
participants, announced those settlements on October 15, 1996,
and collected payment for stipulated penalties.”).
Kasowitz alleges that the defendants—BASF Corporation,
Covestro LLC, Dow Chemical Company and Huntsman
International LLC—“manufacture isocyanate chemicals,
which are used to produce various polyurethane-based
materials such as paint, adhesives, rigid foam for insulation,
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flexible foam for mattresses and cushions, and parts for
automotive interiors.” 1 United States ex rel. Kasowitz Benson
Torres LLP v. BASF Corp., 285 F. Supp. 3d 44, 47 (D.D.C.
2017). Isocyanate chemicals can, under some circumstances,
pose a health hazard if inhaled or exposed to skin. Beginning
in the late 1970s and continuing through the early 2000s, the
defendants acquired information about the adverse health
effects of isocyanate chemicals. They did not disclose this
information to the EPA, however, not even while participating
in the Compliance Audit Program.
Kasowitz sued the defendants under the FCA, alleging that
their TSCA violations—and evasion of responsibility for those
violations—deprived the government of its money and
property. The defendants allegedly deprived the government
of money by failing to pay TSCA and Compliance Audit
Program civil penalties and by concealing their liability from
the EPA. And the defendants allegedly deprived the
government of property in the form of undisclosed substantial
risk information regarding isocyanate chemicals. The
complaint’s first four counts allege violations of the FCA’s
reverse false claim provision 2 (Counts One, Two and Four)
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Because this appeal comes to us at the motion-to-dismiss
stage, we “accept as true all of the complaint’s factual allegations.”
Owens v. BNP Paribas, S.A., 897 F.3d 266, 272 (D.C. Cir. 2018).
2
The reverse false claims provision specifies that: “any person
who . . . knowingly makes, uses, or causes to be made or used, a
false record or statement material to an obligation to pay or transmit
money or property to the Government, or knowingly conceals or
knowingly and improperly avoids or decreases an obligation to pay
or transmit money or property to the Government . . . is liable to the
United States Government.” 31 U.S.C. § 3729(a)(1)(G).
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and conversion provision (Count Three). 3 Count Five alleges
that the defendants engaged in a conspiracy to violate the FCA.
The defendants moved to dismiss the case for failure to state a
claim upon which relief can be granted. BASF Corp., 285 F.
Supp. 3d at 46–47, 49. The district court rejected Kasowitz’s
legal theories and accordingly granted the motion. Id. at 50–
56. Kasowitz timely appealed.
II. ANALYSIS
To survive dismissal under Federal Rule of Civil
Procedure 12(b)(6), a complaint must include factual
allegations that establish a plausible claim to relief. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007) (plaintiff must
plead “enough facts to state a claim to relief that is plausible on
its face”). We consider seriatim and review de novo the five
counts of Kasowitz’s complaint. See Elec. Privacy Info. Ctr.
v. IRS, 910 F.3d 1232, 1236 (D.C. Cir. 2018) (“We review the
district court’s dismissal de novo.”).
A. COUNT ONE
Count One alleges that the defendants violated the FCA’s
reverse false claim provision by “knowingly conceal[ing]
or . . . improperly avoid[ing] . . . an obligation to pay” money—
namely, civil penalties under TSCA and the Compliance Audit
Program. 31 U.S.C. § 3729(a)(1)(G). The TSCA civil
penalty theory is a non-starter. “[A]n unassessed potential
penalty for regulatory noncompliance does not constitute an
obligation that gives rise to a viable FCA claim.” Hoyte v. Am.
3
The conversion provision specifies that: “any person who . . .
has possession, custody, or control of property or money used, or to
be used, by the Government and knowingly delivers, or causes to be
delivered, less than all of that money or property . . . is liable to the
United States Government.” 31 U.S.C. § 3729(a)(1)(D).
6
Nat’l Red Cross, 518 F.3d 61, 67 (D.C. Cir. 2008); see also
United States ex rel. Schneider v. JPMorgan Chase Bank, Nat’l
Ass’n, 878 F.3d 309, 315 (D.C. Cir. 2017) (“[W]e have
previously held that contingent exposure to penalties which
may or may not ultimately materialize does not qualify as an
‘obligation’ under the statute.”). It is undisputed that the EPA
did not assess TSCA penalties against the defendants for failing
to report substantial risk information regarding isocyanate
chemicals. There was, thus, no FCA “obligation” for the
defendants to conceal or avoid.
Kasowitz insists that TSCA automatically imposes an
obligation to pay a civil penalty at the moment a defendant
commits a violation. The automatic nature of the liability, in
Kasowitz’s view, makes a TSCA penalty an existing obligation
to pay under the FCA—not an unassessed, hypothetical penalty
like those we found inadequate in earlier cases, Hoyte, 518 F.3d
at 66–67 (alleged noncompliance with administrative consent
decree); United States ex. rel. Schneider, 878 F.3d at 314–15
(alleged noncompliance with terms of settlement agreement
between mortgage lenders and federal government). As the
Fifth Circuit recently held, however, the EPA—once it has
taken successful administrative action—has discretion to
impose either an appropriate civil penalty or no penalty at all.
United States ex rel. Simoneaux v. E.I. duPont de Nemours &
Co., 843 F.3d 1033, 1040–41 (5th Cir. 2016). Two TSCA
provisions make this conclusion inescapable. First, TSCA
expressly grants the EPA authority to remit or otherwise
decline to impose a civil penalty. 15 U.S.C. § 2615(a)(2)(C)
(EPA “may compromise, modify, or remit, with or without
conditions, any civil penalty which may be imposed under this
subsection.”); see also id. § 2615(a)(2)(B) (“In determining the
amount of a civil penalty, the Administrator shall take into
account the nature, circumstances, extent, and gravity of the
violation or violations and, with respect to the violator, ability
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to pay, effect on ability to continue to do business, any history
of prior such violations, the degree of culpability, and such
other matters as justice may require.”). Because the EPA can
remit a civil penalty—that is, “pardon or forgive” it, Black’s
Law Dictionary 1297 (7th ed. 1999)—TSCA does not create
an obligation to pay a civil penalty at the moment of a statutory
violation; an obligation arises only if and when the EPA
decides to impose a penalty. 4 Accord United States ex rel.
Simoneaux, 843 F.3d at 1040 (“[M]ost regulatory statutes, such
as the TSCA, impose only a duty to obey the law, and the duty
to pay regulatory penalties is not ‘established’ until the
penalties are assessed.”). Second, TSCA itself recognizes that
not every violation results in a civil penalty. Section
2615(b)(1) provides that a willful violator, upon conviction, is
subject to a fine or imprisonment “in addition to or in lieu of
any civil penalty which may be imposed under subsection (a).”
15 U.S.C. § 2615(b)(1) (emphasis added). The phrase “in lieu
of any civil penalty” means that not every TSCA violation
carries a civil penalty. In short: Kasowitz’s theory of
automatic civil penalty liability is incorrect.
Kasowitz’s Compliance Audit Program claim fares no
better. The Compliance Audit Program offered a participating
company a reduced civil penalty in exchange for making an
overdue submission of substantial risk information.
Registration and Agreement for TSCA Section 8(e)
4
Our decision in 3M Company (Minnesota Mining &
Manufacturing) v. Browner, 17 F.3d 1453 (D.C. Cir. 1994), is not to
the contrary. There we stated that “[b]ecause liability for the
penalty attaches at the moment of the violation, one would expect
this to be the time when the claim for the penalty ‘first accrued’” for
statute of limitations purposes. Id. at 1461. 3M Company
addresses when a defendant becomes liable for a TSCA penalty; it
says nothing about when a defendant becomes obligated to pay a
TSCA penalty.
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Compliance Audit Program, 56 Fed. Reg. at 4129–31. A
participating company that failed to submit substantial risk
information, however, faced no additional penalty. Instead,
the EPA reserved its right to initiate administrative action and
seek an ordinary TSCA civil penalty. Id. at 4129 (“EPA
reserves its rights under TSCA section 16 to take appropriate
enforcement action if EPA determines later that the Regulatee
was required to submit under TSCA section 8(e) a study or
report determined by the Regulatee to be not reportable and
therefore not submitted under the TSCA Section 8(e)
Compliance Audit Program.”). In other words, a
manufacturer that withheld substantial risk information was in
the same position it would have been in had it not participated
in the Compliance Audit Program at all. Kasowitz’s
Compliance Audit Program claim thus adds nothing to its
TSCA civil penalty claim, which fails for the reasons just
described.
B. COUNT TWO
Count Two alleges that the defendants violated the reverse
false claim provision by “knowingly conceal[ing] or . . .
improperly avoid[ing] . . . an obligation to pay or transmit”
property in the form of substantial risk information. 31 U.S.C.
§ 3729(a)(1)(G). We assume, without deciding, that the
substantial risk information identified in the complaint
constitutes the defendants’ property. And there is no doubt
that TSCA establishes an “obligation” to inform the EPA of
substantial risk information. 15 U.S.C. § 2607(e) (“Any
person who manufactures . . . a chemical substance or mixture
and who obtains information . . . that such substance or mixture
presents a substantial risk of injury to health or the environment
shall immediately inform the Administrator.” (emphasis
added)). The issue is whether the TSCA obligation to inform
the EPA of substantial risk information qualifies as an
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obligation to transmit property. See 31 U.S.C.
§ 3729(a)(1)(G) (making liable anyone who “knowingly
conceals or knowingly and improperly avoids or decreases an
obligation to pay or transmit money or property to the
Government” (emphasis added)). We conclude that it does
not and therefore affirm the dismissal of Count Two.
The starting place is the United States Supreme Court’s
decision in Cleveland v. United States, 531 U.S. 12 (2000),
which considered whether “making false statements in
applying to the Louisiana State Police for permission to operate
video poker machines” defrauded the State of Louisiana of
property, id. at 15. The Court stated that the gaming license
regime at issue was a “typical regulatory program”: it governed
“engagement in pursuits that private actors may not undertake
without official authorization,” id. at 21, and aimed to maintain
“public confidence and trust that gaming activities . . . are
conducted honestly,” id. at 20 (quoting La. Stat. Ann.
§ 27:306(A)(1) (2000)). Louisiana’s “core concern,” then,
was “regulatory.” Id. The Court compared Louisiana’s
gaming license interest to those interests traditionally protected
by property law and found no analog. Id. at 21–24.
Accordingly, the Court concluded that Louisiana lacked a
property interest. Id. at 24 (“We reject the Government’s
theories of property rights,” in part, “because they stray from
traditional concepts of property.”).
For similar reasons, we conclude that TSCA does not
require the transmission of a property interest. TSCA gives
the EPA one—and only one—interest in substantial risk
information: the right to be informed of it. 15 U.S.C.
§ 2607(e). And the EPA’s “core concern is regulatory.”
Cleveland, 531 U.S. at 20 (emphasis omitted). It does not
acquire information for its own economic benefit but to carry
out its regulatory mission. TSCA’s substantial-risk-reporting
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requirement facilitates the EPA’s role in “regulat[ing] chemical
substances and mixtures which present an unreasonable risk of
injury to health or the environment.” 15 U.S.C. § 2601(b)(2).
Like the gaming license at issue in Cleveland, moreover, the
EPA’s statutory right to be informed of substantial risk
information does not constitute a traditional property right.
Granted, the law has long protected property interests in limited
forms of information. E.g., Carpenter v. United States, 484
U.S. 19, 26 (1987) (“Confidential business information has
long been recognized as property.”); Ruckelshaus v. Monsanto
Co., 467 U.S. 986, 1002 (1984) (trade secrets). But the EPA’s
statutory right to be informed of information is not among
them. Indeed, Kasowitz cites no precedent that recognizes as
a property right a government agency’s statutory entitlement to
receive information from a regulated party. Accordingly,
TSCA’s command to “inform” the EPA of substantial risk
information is not an obligation to “transmit” an interest in
“property.” Cf. Patrick v. Comm’r of Internal Revenue, 799
F.3d 885, 889 (7th Cir. 2015) (information did not constitute
property because plaintiff “had no right to stop anyone else
from using it”).
Kasowitz’s property claim has a second major flaw: the
FCA is not “a vehicle for punishing garden-variety . . .
regulatory violations.” Universal Health Servs., Inc. v. United
States, 136 S. Ct. 1989, 2003 (2016). Keeping with that
principle, in United States ex rel. Bahrani v. Conagra, Inc., 465
F.3d 1189 (10th Cir. 2006), the Tenth Circuit rejected an FCA
relator’s effort to locate a government property right in a
prosaic regulatory requirement, id. at 1205. The relator there
sued Conagra for modifying export certificates issued by the
United States Department of Agriculture (Agriculture). Id. at
1192–95. Under applicable regulations, Conagra had to return
the certificates to Agriculture once it concluded that the
modifications were necessary. See id. at 1204–05. The
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relator claimed that “[b]y making changes on the original
certificates instead of returning them . . . Conagra employees
avoided an obligation to ‘transmit . . . property to the
Government.’” Id. at 1205 (third alteration in original) (quoting
31 U.S.C. § 3729(a)(7)). The Tenth Circuit rejected the
relator’s novel idea that the certificates constitute government
property, explaining that “applying the [FCA] in this fashion
would stretch it far beyond its intended purpose.” Id. So too
here. Regulatory reporting requirements, including TSCA’s
requirement to report substantial risk information, are a
mainstay of regulatory agencies. E.g., 29 U.S.C. § 1024(a)(1)
(ERISA); 42 U.S.C. § 7671b(b) (Clean Air Act); 42 U.S.C.
§ 11004 (EPCRA). And Kasowitz’s property rights theory, if
adopted, would make any violation of countless reporting
requirements actionable under the FCA. Absent ample
evidence of congressional intent, we will not interpret the term
“property” in a way that fundamentally changes the
relationship between the FCA and “garden-variety . . .
regulatory violations.” Universal Health Servs., Inc., 136 S.
Ct. at 2003.
C. COUNTS THREE, FOUR AND FIVE
Count Three alleges that the defendants violated the
FCA’s conversion provision by failing to deliver money
(TSCA civil penalties) or property (substantial risk
information) to the EPA. To be liable under the conversion
provision, however, a defendant must possess “property or
money used, or to be used, by the Government.” 31 U.S.C.
§ 3729(a)(1)(D). But the defendants did not possess any such
money or property. The EPA did not assess civil penalties
against the defendants and no obligation to pay the EPA any
money automatically arose based on the defendants’ alleged
TSCA violations: they did not possess money to be used by the
government. See supra Section II.A. Likewise, TSCA did
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not require the defendants to transmit any property interest in
the alleged substantial risk information to the EPA: they did
not possess property to be used by the government. See supra
Section II.B. Count Three was therefore properly dismissed.
The remaining counts merit only brief discussion.
Kasowitz made no argument in its opening brief that the district
court erred in dismissing Count Four and, accordingly, any
challenge to Count Four is forfeit. Al-Tamimi v. Adelson, 916
F.3d 1, 6 (D.C. Cir. 2019) (“A party forfeits an argument by
failing to raise it in his opening brief.”). To succeed on Count
Five, which alleges that the defendants violated the FCA
conspiracy provision, Kasowitz had to establish an underlying
FCA violation. 31 U.S.C. § 3729(a)(1)(C) (“[A]ny person
who . . . conspires to commit a violation of” other FCA
provisions “is liable to the United States Government.”); cf.
Halberstam v. Welch, 705 F.2d 472, 479 (D.C. Cir. 1983)
(“Since liability for civil conspiracy depends on performance
of some underlying tortious act, the conspiracy is not
independently actionable; rather, it is a means for establishing
vicarious liability for the underlying tort.”). Our rejection of
all of Kasowitz’s underlying theories of liability mandates that
we affirm the dismissal of Count Five.
For the foregoing reasons, we affirm the judgment of the
district court dismissing the complaint.
So ordered.