Joseph Blyn v. Davis S.R. Aviation, L.L.C., et al
Filing
UNPUBLISHED OPINION FILED. [14-50704 Affirmed] Judge: RHB , Judge: LHS , Judge: SAH. Mandate pull date is 08/04/2015 [14-50704]
Case: 14-50704
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Date Filed: 07/14/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 14-50704
United States Court of Appeals
Fifth Circuit
FILED
United States of America, ex rel, GEORGE GAGE,
Plaintiff - Appellant
July 14, 2015
Lyle W. Cayce
Clerk
v.
DAVIS S.R. AVIATION, L.L.C., doing business as Challenger Spares and
Support; CHALLENGER REPAIR GROUP, L.L.C.; ORION AIR GROUP,
L.L.C.; BOMBARDIER, INCORPORATED; NORTHROP GRUMMAN
CORPORATION; STEVE DAVIS, Individually; NORTHRUP GRUMMAN
DEFENSE MISSION SYSTEMS; NORTHROP GRUMMAN SPACE AND
MISSION SYSTEMS, INCORPORATED,
Defendants - Appellees
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:12-CV-904
Before BARKSDALE, SOUTHWICK, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:*
The False Claims Act is a potent remedial statute. As a counterweight
to the statute’s power and as a shield against fishing expeditions, FCA suits
are subject to the screening function of Federal Rule of Civil Procedure 9(b).
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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Relator George Gage raises allegations about the maintenance and operation
of military aircraft in a war zone; however, despite repeated opportunities, he
has not complied with the FCA’s pleading requirements. For that reason, we
AFFIRM the district court’s dismissal of his complaint.
FACTS AND PROCEEDINGS
The following allegations come from Gage’s Third Amended Complaint
(“TAC”). In 2009, Northrop Grumman contracted with the United States Air
Force (“USAF”) to provide the Battlefield Airborne Communication Node
(“BACN”)—a system critical to interservice troop communication—and to
operate three Bombardier aircrfaft containing the BACN. Orion Air Group,
L.L.C., in turn, subcontracted with Northrop to operate and maintain the
BACN aircraft. Gage alleges that the critical nature of the BACN missions
and the heavy use of the aircraft required Orion to acquire replacement parts,
many of which were not readily available from original equipment
manufacturers. One of the sources to which Orion looked was CSS. 1
In April 2008, CSS, assisted by Bombardier, acquired a civilian
Bombardier aircraft (Serial Number 9211) that had crash landed in Canada
(the “9211 Aircraft”). Gage alleges that parts from the 9211 Aircraft, including
Rolls Royce engines and a Variable Frequency Generator (“VFG”), were
defective and could present a potential safety risk. Indeed, many parts were
listed as “suspect” on a Worldwide Communication issued by Rolls Royce
following the crash. Gage alleges that CSS sold parts from the 9211 Aircraft
to Orion, which installed them on BACN aircraft. On June 28, 2010, an Orionoperated BACN aircraft containing the 9211 Aircraft’s VFG suffered a
“catastrophic incident” over Afghanistan after the VFG exploded. Gage alleges
In this opinion, “CSS” refers to defendants Davis S.R. Aviation, L.L.C. d/b/a
Challenger Spares and Support; Challenger Repair Group, L.L.C., and Steve Davis,
individually.
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that defendants were part of a scheme to defraud the government whereby CSS
and Bombardier supplied non-conforming parts to Orion, who installed them
on aircraft as Northrop’s subcontractor in violation of contractual or regulatory
requirements.
Relator Gage’s involvement in this case stems from his participation in
a prior lawsuit that also arose from the crash of the 9211 Aircraft. In May
2010, CSS sued Rolls Royce in the Western District of Texas, alleging that Rolls
Royce made false statements in the Worldwide Communication about the
condition of the engines acquired by CSS in an attempt to prevent CSS from
selling the engines on the open market. CSS alleged that it was damaged
because it was forced to lease the engines to Orion for less than CSS would
have received had Rolls Royce not issued the advisory. Gage asserts that he
learned of defendants’ false claims during his review of Rolls Royce documents
while employed as an expert for Rolls Royce during that litigation.
On September 27, 2012, Gage filed his initial qui tam complaint. After
Gage filed a First Amended Complaint, the government declined to intervene.
Gage then filed a Second Amended Complaint. After a hearing, the district
court granted defendants’ motions to dismiss but permitted Gage a “final
opportunity” to amend his complaint to comply with Rule 9(b). Defendants
again filed motions to dismiss the resulting TAC, and CSS filed a motion for
sanctions, claiming that Gage had violated a protective order in the Rolls Royce
litigation. On July 2, 2014, the district court dismissed both the TAC and
CSS’s motion for sanctions. The district court held that most of Gage’s claims
were foreclosed by the public disclosure bar, and that no claims were pled
adequately under Rule 9(b). Gage was denied leave to amend a fourth time,
and appeals the district court’s dismissal with prejudice.
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DISCUSSION
I.
The dispositive issue on appeal is whether the district court properly
dismissed the TAC for failure to state a claim with particularity.
A.
This court reviews a district court’s dismissal of a complaint for failure
to state a claim de novo, accepting as true the plaintiff’s well-pleaded factual
allegations. United States ex rel. Steury v. Cardinal Health, Inc. (“Steury I”),
625 F.3d 262, 266 (5th Cir. 2010). “The plaintiff’s factual allegations must
support a claim to relief that is plausible on its face and rises above mere
speculation.” Id.
An FCA complaint must meet the heightened pleading
standard of Rule 9(b). To allege fraud, “a party must state with particularity
the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). “Rule 9(b) requires,
at a minimum, that a plaintiff set forth the ‘who, what, when, where, and how’
of the alleged fraud.” Id. (internal quotation marks and citation omitted); see
also United States ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 329 (5th Cir.
2003) (“The time, place and contents of the false representations, as well as the
identity of the person making the misrepresentation and what [that person]
obtained thereby must be stated . . . in order to satisfy Rule 9(b).” (alteration
in original) (internal quotation marks and citation omitted)).
B.
Any person who “knowingly presents, or causes to be presented, a false
or fraudulent claim for payment or approval” or who “knowingly makes, uses,
or causes to be made or used, a false record or statement material to a false or
fraudulent claim” is liable under the FCA. 31 U.S.C. § 3729(a)(1)(A)–(B). “[T]o
state a claim under the FCA, a plaintiff must allege: (1) a false statement or
fraudulent course of conduct; (2) made or carried out with the requisite
scienter; (3) that was material; and (4) that is presented to the Government.”
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Steury I, 625 F.3d at 267 (citing United States ex rel. Longhi v. Lithium Power
Techs., Inc., 575 F.3d 458, 467 (5th Cir. 2009)).
C.
Gage does not allege that defendants expressly certified that parts sold
to the government complied with any statute, regulation, or contractual
provision. Rather, Gage’s allegations fall under the implied false certification
theory of FCA liability. He alleges that the defendants, by selling parts to and
requesting reimbursement from the government, implied that the parts
complied with certain contractual or regulatory provisions. See id. at 268. For
over a decade, this court has avoided deciding whether to recognize the implied
certification theory.
See, e.g. id. (“This Court has not yet recognized the
implied-certification theory. . . . We need not resolve the issue today, because
in any event the factual allegations in Steury’s amended complaint provide no
basis for implying a false certification.”); United States ex rel. Willard v.
Humana Health Plan of Tex. Inc., 336 F.3d 375, 382 (5th Cir. 2003) (assuming
without deciding that the implied false certification theory applies). Because
even assuming the theory applies, we find that the district court correctly held
that Gage’s factual allegations do not plead with particularity the required
“who, what, when, where, and how” of an implied false claim, once again we
defer that decision to another day.
1.
Gage’s implied false certification theory fails because he does not plead
with particularity what was false about the claims or how they were false. A
prerequisite for claims to be false is that they “certif[y] compliance (implicitly
or explicitly) with some statute, regulation, or contract provision . . . .” Steury
I, 625 F.3d at 269. To plead the “what” of a claim in a case such as this,
therefore, a plaintiff must state with particularity the statute, regulation, or
contract provision with which defendants have certified compliance. See id.
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Gage does not allege that defendants violated a statute. Instead, he claims
that defendants violated several Federal Acquisition Regulation (“FAR”) and
Defense Federal Acquisition Regulation Supplement (“DFARS”) provisions.
Gage does not plausibly allege that the operative contract between the USAF
and Northrop (the “Northrop contract”) contains these provisions. He does not
directly identify any contract provision that was violated, because he
acknowledges he has not seen the Northrop contract. 2 See United States ex rel.
Steury v. Cardinal Health, Inc. (“Steury II”), 735 F.3d 202, 206 (5th Cir. 2013)
(holding allegations deficient because they did “not identify the contractual
provisions” allegedly violated). Gage argues that the Northrop contract must
contain these provisions because they are mandatory, but FAR and DFARS
provisions are not required in all government contracts. See 48 C.F.R. § 1.104
(“The FAR applies to all acquisitions as defined in part 2 of the FAR, except
where expressly excluded.” (emphasis added)); see also 48 C.F.R. § 46.311(a)
(“The contracting officer shall insert the clause at 52.246-11 . . . in solicitations
and contracts when the inclusion of a higher-level contract quality requirement
is necessary.” (emphasis added)); see Ins. Co. of N. Am. v. Aberdeen Ins. Servs.,
Inc., 253 F.3d 878, 885 (5th Cir. 2001) (noting that some FAR provisions are
not automatically included in government contracts).
Neither has Gage
plausibly alleged that provisions listed in the TAC are independently
applicable to the USAF or to military aircraft in Afghanistan. See, e.g., 14
C.F.R. § 91.9 (referring only to “civil” aircraft). 3
Defendant Northrop, the only party in this action that signed the contract, disputes
that the contract is classified. On a motion to dismiss, we accept as true all factual allegations
contained within the complaint, so we assume the contract is classified. See Ashcroft v. Iqbal,
556 U.S. 662, 678–79 (2009).
3 Gage criticizes the district court for not crediting his allegations that Orion breached
a second contract—between USAF and Orion—that required Orion to follow FAR and
DFARS. The district court was correct to discount the Orion contract because the TAC
2
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Gage’s failure to allege with particularity that the Northrop contract
includes the listed provisions, or that regulations are otherwise applicable, is
fatal to his claim because materiality is a required element of an FCA claim.
See Steury I, 625 F.3d at 267. And materiality—whether the false claim has
“a natural tendency to influence, or [is] capable of influencing, the payment or
receipt
of
money
or
property”—is
necessarily
speculative
without
particularized and plausible identification of the contractual or regulatory
provision allegedly violated. 31 U.S.C. § 3729(b)(4) (defining materiality as the
term is used in the FCA); Steury II, 735 F.3d at 207 (“[M]erely descriptive or
conclusory allegations about the . . . contracts [are] insufficient.”).
Gage
therefore has not sufficiently pleaded the what of a false claim. See United
States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903
(5th Cir. 1997) (“Thompson’s allegations . . . amount to nothing more than
speculation, and thus fail to satisfy Rule 9(b).”).
Even if the cited provisions did apply to defendants’ actions, Gage merely
lists them and has not pleaded how they were violated. Gage uses conclusory
terms such as “non-conforming” and “unapproved” to describe the parts CSS
sold, but does not explain how the parts failed to comply with the contract to
maintain the BACN aircraft or with any applicable regulation. The essence of
Gage’s complaint is that CSS sold a government contractor parts from a
crashed aircraft without informing the government of their pedigree, and at
least one of those parts failed. Yet Gage fails to provide details on how these
events were false or fraudulent.
Gage concedes that “there is nothing
inherently wrong under [FAA] regulations or the [FAR] with obtaining parts
from an accident related aircraft” and merely contends, without elaboration,
references the Orion contract in a single conclusory paragraph and does not plead the “what”
or “how” of the false claims with any particularity.
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that “the manner in which the defendants conspired to obtain the parts”
violated the regulations. Gage has failed to allege how the parts deviated from
any government standards. See Steury II, 735 F.3d at 206 (“[S]imply stating
the conclusion will not do. . . . [T]he essence of the fraudulent activity of implied
false certification of compliance cannot be gauged unless [the relator] reveals
how the [product] deviated from the government’s specifications.”).
Gage
argues that the VFG’s failure and explosion show that it was non-airworthy
and so failed to comply with regulations. But post hoc product failure is not
enough, standing alone, to create an inference that the product was noncompliant at the time of sale. Cf. Casey v. Toyota Motor Eng’g & Mfg. N. Am.,
Inc., 770 F.3d 322, 326 (5th Cir. 2014) (stating the general rule that product
failure, standing alone, is insufficient proof of a manufacturing defect under
state products liability law).
Gage further argues that complying with the Rule 9(b) pleading
standard is impossible because the Northrop contract is classified. We may
relax the pleading requirements of 9(b) if “facts relating to the fraud are
peculiarly within the perpetrator’s knowledge.” Dow Chem. Co., 343 F.3d at
330 (internal quotation marks and citation omitted). Here, relaxation is not
warranted.
The contract is not peculiarly within Northrop’s knowledge
because the USAF, as Northrop’s counterparty, presumably also has
knowledge of the contract. See United States ex rel. Russell v. Epic Healthcare
Mgmt. Grp., 193 F.3d 304, 308 (5th Cir. 1999) (declining to relax the 9(b)
standard where a government entity possessed documents containing requisite
information), abrogated on other grounds by United States ex rel. Eisenstein v.
City of New York, 556 U.S. 928 (2009).
2.
The TAC also fails to plead with particularity when and where
defendants made false claims. Gage states the precise dates of Bombardier’s
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alleged submissions of parts to original equipment manufacturers for repair,
and of CSS’s sales of parts to Orion. However, Gage does not allege with any
specificity when Northrop—or any other defendant—presented invoices to the
USAF. Gage alleges only that defendants submitted nearly $4 million of false
invoices to the government between 2009 and 2011. This range is not specific
enough to comply with Rule 9(b). See United States ex rel. Hebert v. Dizney,
295 F. App’x 717, 722–23 (5th Cir. 2008) (allegations that defendants routinely
submitted bills over the course of seven years were not sufficiently specific
under 9(b)). Gage hypothesizes, in his brief and without citing the TAC, that
the submission of invoices occurred within sixty days of the sale of the parts.
This contention is speculative and does not withstand dismissal under Rule
9(b). Gage also fails to plead where the alleged wrongful acts occurred.
3.
By not alleging with particularity the who, what, when, where, and how
of the alleged fraudulent scheme, Gage has failed to comply with Rule 9(b).
D.
Gage contends that the district court erred in not permitting him to
amend his complaint for a fourth time. We review a district court’s denial of
leave to amend a pleading for abuse of discretion. See Steury I, 625 F.3d at
266. “The district court properly exercises its discretion . . . when it denies
leave to amend for a substantial reason, such as undue delay, repeated failures
to cure deficiencies, undue prejudice, or futility.” United States ex rel. Spicer
v. Westbrook, 751 F.3d 354, 367 (5th Cir. 2014). The district court denied Gage
leave to amend because it determined that he had years and several chances
to refine his pleadings, he was previously warned that the TAC would be his
last chance, and “leave to amend would be wholly futile.” Gage does not
identify new allegations that would make amendment effective. Instead, he
reargues that the TAC already satisfies the requirements of Rule 9(b) and says
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that he would name additional defendants if granted leave to amend. 4 The
district court did not abuse its discretion in determining that Gage has had
sufficient opportunity to plead his claims and that further amendment would
be futile. 5
II.
We therefore hold that this case was properly dismissed with prejudice
for failure to plead fraud with particularity. “Because this Court may affirm
on any grounds supported by the record below,” we need not address the
interesting and difficult jurisdictional questions concerning the public
disclosure and original source doctrines. Dow Chem. Co., 343 F.3d at 330.
CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
Gage also argues that he is no longer constrained from including detailed allegations
in the TAC because the specter of sanctions for violating the protective order in the Rolls
Royce litigation has been removed. The motion for sanctions was dismissed, not denied, so
Gage has not shown that he may freely add any new allegations that previously had been
subject to the protective order.
5 Gage’s difficulty in serving Orion does not warrant granting leave to amend because
curing it will have no effect on the deficient allegations in the complaint.
4
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