UNITED STATES OF AMERICA et al v. The Republic of Honduras et al
Filing
80
ORDER granting 55 Motion to Dismiss. Signed by Chief Judge Kristi K. DuBose on 01/30/2020. (nah)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
UNITED STATES OF AMERICA
ex rel., MURRAY FARMER, et al.,
Plaintiffs,
vs.
THE REPUBLIC OF HONDURAS, et al.,
Defendants.
)
)
)
)
)
)
)
)
)
)
CIVIL ACTION NO. 17-00470-KD-N
ORDER
This False Claims Act action is before the Court on the motion to dismiss filed by the
United States and brief in support; the response filed by Relators Murray Farmer, John P.
McAvoy, and Marco Zavala; the United States reply; and additional briefing. (docs. 55, 55-1, 66,
71, 77). 1 The motion was heard on January 16, 2020. Present for the hearing were Jay D.
Majors, counsel for the U.S. Department of Justice; Rachel Cochran, counsel for the United
States Agency for International Development; and Willie J. Huntley, Jr., counsel for the Relators.
Upon consideration, and for the reasons set forth herein, the motion to dismiss is GRANTED.
I. Background
After Hurricane Mitch devastated Honduras in 1998, the United States responded to
Honduras’ plea for assistance and emergency relief and appropriated $250 million in aid. The
United States Agency for International Development (USAID) distributed the aid via grants and
contracts. One contract was awarded to DRC, Inc. for reconstruction and expansion of water,
sewer and drainage projects. However, DRC, Inc. alleges that after completion, Defendant
1
In light of this ruling, no further briefing is required from the United States.
Republic of Honduras, Fondo Hondureno de Inversion Social (FHIS) or USAID failed to fully
compensate DRC, Inc. DRC, Inc. filed two claims in the Court of Federal Claims in an effort to
be compensated. In a separate suit the United States alleged that DRC, Inc. filed false claims.
These suits were settled by each side agreeing to drop their claims.
DRC, Inc. then pursued their claim against FHIS and in 2009 obtained an arbitration
award of $51 million from Honduran arbitrators under Honduran law. However, in 2013 the
Supreme Court of Honduras refused to confirm the arbitration award. DRC, Inc. also filed a suit
against the Republic of Honduras. In DRC, Inc. v. Republic of Honduras, 71 F. Supp. 3d 201
(D.D.C. 2014), DRC sought to enforce, against the Republic of Honduras, the arbitration award
that DRC had obtained against FHIS. The Court found that FHIS was a “juridically independent
entity” with a “presumption of separateness from the Republic [of Honduras] for purposes of
determining whether the Court has subject matter jurisdiction.” Id. at 214. Accordingly, the
Court determined that because the Republic of Honduras was not a party to the arbitration, they
were entitled to sovereign immunity. The Court then dismissed the action for lack of subject
matter jurisdiction. Id.
The Relators initially filed this False Claims Act action against the Republic of
Honduras; FHIS; Moises Starkman, former Minister of FHIS; Carlos Roberto Flores, former
President of the Republic of Honduras; Juan Orlando Hernandez, current President of Honduras;
Gabriela Nunez de Reyes, Secretary of State for Finance; Wilfredo Cerrato current Secretary of
Finance Republic of Honduras; Jose Manuel Zelaya Rosales, current Secretary of Finance; and
Mario Rene Pineda Valle, current Minister of FHIS; and Hector Ramon Trochez, Attorney
General for the Republic of Honduras (doc. 1). The Relators alleged that the Honduran
government falsely certified that FHIS was a unit of the Honduran government whereas to
2
qualify FHIS to receive aid from the United States. The Relators base their claim of falsity on
the 2014 District of District of Columbia decision wherein the Court found FHIS to be a separate
and independent entity. The Relators thus alleged that the United States has been defrauded.
And because FHIS was not eligible to receive the aid, all claims submitted since 2000 by
contractors to FHIS, and in turn submitted to USAID and paid by the United States, are false.
Therefore, the Honduran Defendants are liable to the United States for damages and penalties
totaling approximately $1 billion.
After the United States declined to intervene (doc. 16), the Relators filed an amended
complaint (doc. 21). Substantially similar allegations are alleged against the Honduran
Defendants as in the original complaint. However, the Relators also add USAID employees as
Defendants. Specifically, the Relators raise claims against Paul Christian Tuebner, Mission
Director, USAID, individually and in his official capacity; Mauricio Cruz MDDI USAID,
individually and in his official capacity; Brad Fujimoto, MDDI USAID, individually and in his
official capacity; Carmen Zembrana, SPS USAID, individually and in his official capacity;
Christopher Cushings, SPS USAID, individually and in his official capacity; Annette Elizabeth
Tuebner, OAA USAID, individually and in her official capacity; Dean Walter OFM USAID,
individually and in his official capacity; and Randall Peterson A/DMD USAID, individually and
in his official capacity (doc. 21).
With respect to the USAID employee Defendants, the Relators allege that they
“corruptly, falsely and fraudulently conspired together to present a false and fraudulent claim to
the United States and to have funds and grants from the United States fraudulently transferred
and diverted to the Honduran Defendants.” (Id., p. 14). The conspiracy is alleged to have
occurred in May 2005 (Id., p. 14-15). The Relators allege that these USAID employees and the
3
Honduran Defendants allegedly diverted $2.7 million from a contract between DRC, Inc. and
FHIS, then diverted $100,000 of the $2.7 million to FHIS to pay legal expenses, and then
diverted the remaining $2.6 million to a different construction project. (Id., p. 15).
The United States filed a motion to dismiss the action (doc. 55). The United States
disagrees with the Relator’s assessment that FHIS was not qualified to receive aid from the
United States and also disagrees that the Republic of Honduras falsely certified that FHIS was a
unit of the Republic of Honduras.
The Relators filed their response in opposition (doc. 66). The Relators first argue that the
United States states does not have standing to file the motion since they did not intervene. Next
the Relators argue that the United States must have a valid purpose to dismiss the case.
As required by 31 U.S.C. § 3730(c)(2)(A), the Relators were notified by the United
States that the motion had been filed and the Court provided the Relators “with an opportunity
for hearing on the motion” in January 16, 2020. At the close of the hearing, the Court allowed
additional briefing on specific issues as set forth on the record.
II. Statement of the law
“The False Claims Act enables private citizens to recover damages on behalf of the
United States by filing a qui tam action against a person who (1) knowingly presents, or causes
to be presented, to an officer or employee of the United States Government ... a false or
fraudulent claim for payment or approval; [or] (2) knowingly makes, uses, or causes to be made
or used, a false record or statement to get a false or fraudulent claim paid or approved by the
Government.” Urquilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1045 (11th Cir. 2015) (citing 31
U.S.C. § 3729(a)(1)-(2)). “In a qui tam action, the relator ‘pursues the government’s claim
4
against the defendant, and asserts the injury in fact suffered by the government.’” United States
ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081, 1086-1087 (11th Cir. 2018), cert.
granted sub nom. Cochise Consultancy, Inc. v. U.S. ex rel. Hunt, 139 S. Ct. 566 (2018), and
aff'd, 139 S. Ct. 1507 (2019) (citation omitted). “In bringing a qui tam action, the relator ‘in
effect, su[es] as a partial assignee of the United States.’” Id. (quoting Vt. Agency of Nat. Res. v.
United States ex rel. Stevens, 529 U.S. 765, 773 n.4, 120 S. Ct. 1858 (2000) (emphasis omitted))
(bracketed text in original).
Relevant to this action, a claim is defined as a request for payment that “(i) is presented to
an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or
other recipient, if the money or property is to be spent or used on the Government's behalf or to
advance a Government program or interest, and if the United States Government-- (I) provides or
has provided any portion of the money or property requested or demanded; or (II) will reimburse
such contractor, grantee, or other recipient for any portion of the money or property which is
requested or demanded[.]” 31 U.S.C. § 3729(b)(2). “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 False Claims Act.” United States v. HPC Healthcare, Inc.,
723 Fed. Appx. 783, 788 (11th Cir.), cert. denied sub nom. U.S. ex rel. Chase v. Chapters Health
Sys., Inc., 139 S. Ct. 69 (2018) (footnote omitted) (citing 31 U.S.C. § 3729(a)(1)(A)-(B)).
Generally, false claims are claims that may wrongfully cause the United States to
disburse funds. United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir.
2017). A claim may be false if based on a false representation that fraudulently induces the
United States to provide funds or award contracts. United States ex rel. Reeves v. Mercer
5
Transportation Co., Inc., 253 F. Supp. 3d 1242, 1252–53 (M.D. Ga. 2017) (citing U.S. ex. rel.
Marcus v. Hess, 317 U.S. 537, 63 S. Ct. 379 (1943)). Overall, “‘[l]iability under the False
Claims Act arises from the submission of a fraudulent claim to the government, not the disregard
of government regulations or failure to maintain proper internal procedures.’” Urquilla-Diaz, 780
F.3d at 1045 (quoting Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir. 2005)). “Simply
put, the ‘sine qua non of a False Claims Act violation’ is the submission of a false claim to the
government.” Id. (quoting United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301,
1311 (11th Cir. 2002)).
“If the United States decides to intervene, the government acquires ‘primary
responsibility for prosecuting the action,’ although the relator remains a party.” United States ex
rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d at 1087 (quoting 31 U.S.C. § 3730(c)(1)). “In
contrast, if the United States declines to intervene, the relator may proceed with the action alone
on behalf of the government, but the United States is not a party to the action.” Id. (citing 31
U.S.C. § 3730(c)(3)). However, the court may permit the United States to intervene “upon a
showing of good cause.” 31 U.S.C § 3730(c)(3)).
“Although the United States is not a party to a non-intervened case, it nevertheless retains
a significant role in the litigation. The government may request to be served with copies of all
pleadings and deposition transcripts, seek to stay discovery if it ‘would interfere with the
Government’s investigation or prosecution of a criminal or civil matter arising out of the same
facts,’ and veto a relator’s decision to voluntarily dismiss the action.” Hunt at 1087 (citing 31
U.S.C § 3730(b)(1), (c)(3), (c)(4)). When a false claims action is brought by a “private person”
the “action may be dismissed only if the court and the Attorney General give written consent to
the dismissal and their reasons for consenting.” 31 U.S.C. § 3730(b)(1).
6
Additionally, the “Government may dismiss the action notwithstanding the objections of
the person initiating the action if the person has been notified by the Government of the filing of
the motion and the court has provided the person with an opportunity for a hearing on the
motion.” 31 U.S.C.§ 3730(c)(2)(A).
III. Whether the United States is required to intervene before filing a motion to dismiss
The Relators argue that the United States is not a party because it did not proceed with
the action and has not been granted leave to intervene upon a showing of good cause. (doc. 66, p.
12-14, 16-17). The Relators argue that because the United States is not a party, it does not have
standing to file the motion to dismiss. (Id.) The United States argues that it need not intervene
before moving to dismiss the action (doc. 71, p. 1-3).
In United States v. Everglades College, Inc., 855 F. 3d 1279 (11th Cir. 2019), the Court
of Appeals for the Eleventh Circuit addressed the issue of whether the United States must
successfully intervene before settling a qui tam action. The relators were dissatisfied with the
outcome at trial and appealed. While the appeal was pending, the United States moved to
intervene for the purpose of settling the action. The relators argued that the district court erred by
allowing the United States to intervene. The Eleventh Circuit found that the United States was
not required to intervene to settle the action and that “[b]ecause intervention was not required,
we need not concern ourselves with whether the requirements” to intervene had been met. Id. at
1285-1286. The Eleventh Circuit found that the United States right to settle or dismiss was not
conditioned upon “formally intervening in the case”, explaining as follows:
A straightforward reading of the text supports this conclusion. First, subsection
(b)(2) expressly links intervention to the government’s decision to “proceed
with the action.” § 3730(b)(2) (“The Government may elect to intervene and
proceed with the action....” (emphasis added)). Second, in subsections
7
(c)(2)(A) and (B), the statute spells out the circumstances in which the
government may settle or dismiss a qui tam case, and neither subsection
conditions the government’s rights on formally intervening in the case. Instead,
they provide in unequivocal terms that “the Government may settle [or
dismiss] the action with the defendant notwithstanding the objections of the
person initiating the action.” § 3730(c)(2)(A), (B) (emphasis added). In the
context of dismissals, the court need only “provide[ ] the [relator] with an
opportunity for a hearing,” § 3730(c)(2)(A); and with settlements, the court
must “determine[ ], after a hearing, that the proposed settlement is fair,
adequate, and reasonable under all the circumstances,” § 3730(c)(2)(B). We
decline to import the good-cause intervention requirement from subsection
(c)(3) into these provisions which specifically govern dismissals and
settlements.
United States v. Everglades College, Inc., 855 F.3d at 1286.
Relevant to this action, and although arguably in dictum, the Eleventh Circuit further
explained:
And in the closely related context of dismissals, other circuits have also
declined to require good cause or formal intervention. For instance, the Tenth
Circuit in Ridenour v. Kaiser–Hill Co. focused on the plain statutory language,
noting that it could “identify nothing in the language of [the subsection on
dismissals] to suggest the authority of the Government to dismiss a qui tam
action is dependent upon prior intervention in the case.” 397 F.3d 925, 933
(10th Cir. 2005); see also Swift v. United States, 318 F.3d 250, 251–52 (D.C.
Cir. 2003) (finding intervention necessary “only if the government wishes to
‘proceed with the action’ ” and “[e]nding the case by dismissing it is not
proceeding with the action”); Riley [v. St. Luke’s Episcopal Hosp, 252 F.3d
[749,] at 753 (5th Cir. [2001]) (noting that “the government retains the
unilateral power to dismiss an action ‘notwithstanding the objections of the
person’ ” (quoting Searcy v. Philips Elecs. N. Am. Corp., 117 F.3d 154, 160
(5th Cir. 1997))).
Id.
In view of the Eleventh Circuit’s decision, the Court finds that the United States was not
required to move to intervene and establish good cause for intervention, before filing a motion to
dismiss.
8
IV. The United States’ motion to dismiss
The federal courts have applied two standards for dismissal. Some courts have found that
the United States has an unfettered right to dismiss, see Swift v. United States, 318 F. 3d 250,
251 (D.C. Cir. 2003), while other courts have found that the United States may dismiss only after
identifying a valid government purpose and a rational relation between dismissal and
accomplishing that purpose. Under the latter analysis, if the United States meets these
requirements, the burden shifts to the Relators to show that dismissal is fraudulent, arbitrary and
capricious or illegal. If the Relators cannot make this showing, dismissal is appropriate. See
United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F. 3d. 1139, 1145
(9th Cir. 1998); Ridenour v. Kaiser-Hill Co., 397 F. 3d 925, 932-933 (10th Cir. 2005).
The United States argues that as the real party in interest, the False Claims Act permits it
to dismiss a qui tam action even if the Relators object (doc. 55-1, pgs. 3-13). The United States
points out that while the Eleventh Circuit has not specifically decided the issue, it has indicated
in dictum that the decision to dismiss is at the sole discretion of the Executive Branch and
without a judicial determination of reasonableness. (Id.) Alternatively, the United States argues
that it has identified a valid governmental purpose and that there is a rational relation between
dismissal and accomplishing that purpose (Id., p. 13-19).
The Relators oppose dismissal of the action and argue that the Court should apply the
two-step analysis (doc. 66). They argue that they can meet their burden to show that the
dismissal is unrelated to the merits, vague, arbitrary and capricious. They argue that the United
States’ proffered purposes for dismissal “are only a pretext for the Governments true motivation
which is animus towards the relator.” (Id., p. 3, 15-24)
9
Some guidance regarding the appropriate standard is found in United States v. Everglades
College, Inc. The Eleventh Circuit compared the statutory provision for dismissal with that for
settlement and found that “[w]hen the government seeks to dismiss the FCA action, the statute
does not prescribe a judicial determination of reasonableness, see 31 U.S.C. § 3730(c)(2)(A);
whereas when the government wants to settle a qui tam claim, the court must find the settlement
is ‘fair, adequate, and reasonable’ § 3730(c)(2)(B) . . . Because of this differential statutory
treatment, government-obtained FCA settlements do not receive the same level of deference that
applies to dismissals.” 855 F. 3d at 1288. In reaching this distinction, the Eleventh Circuit cited
United States ex rel. Schweizer v. Oce N.V., 677 F.3d 1228, 1233–34 (D.C. Cir. 2012) for its
“thorough analysis of why FCA settlements warrant more rigorous judicial review than
dismissals.” Id.
In Schweizer, the D. C. Circuit explained that “[w]e have held that § 3730(c)(2)(A)
provides the government with ‘an unfettered right to dismiss’ qui tam claims, . . . and that the
only function of a hearing under § 3730(c)(2)(A) ‘is simply to give the relator a formal
opportunity to convince the government not to end the case.’” 677 F.3d at 1233 (citing Swift,
318 F.3d at 252-253 and United States ex rel. Hoyte v. Am. Nat'l Red Cross, 518 F.3d 61, 65
(D.C. Cir. 2008)).
The Eleventh Circuit’s reliance upon Schweizer indicates that it agrees that the United
States has an “unfettered right to dismiss” a qui tam action. Id. In Schweizer, the court explained
that as opposed to a settlement, “in a pure dismissal as in Swift, the relator has no protection: he
is not entitled to compensation or judicial review of the government's decision.” 677 F.3d at
1234. In Swift, the court explained as follows:
We hesitate to adopt the Sequoia test. It may be that despite separation of
powers, there could be judicial review of the government's decision that an
10
action brought in its name should be dismissed. Cf. United States v. Cowan,
524 F.2d 504, 513 (5th Cir.1975). But we cannot see how § 3730(c)(2)(A)
gives the judiciary general oversight of the Executive's judgment in this regard.
The section states that “The Government”—meaning the Executive Branch,
not the Judicial— “may dismiss the action,” which at least suggests the
absence of judicial constraint. To this must be added the presumption that
decisions not to prosecute, which is what the government's judgment in this
case amounts to, are unreviewable. Cf. Heckler v. Chaney, 470 U.S. 821, 831–
33, 105 S.Ct. 1649, 1655–57, 84 L.Ed.2d 714 (1985); Newman v. United
States, 382 F.2d 479, 480 (D.C.Cir.1967). Reading § 3730(c)(2)(A) to give the
government an unfettered right to dismiss an action is also consistent with the
Federal Rules of Civil Procedure. Rule 41(a)(1)(i) permits a plaintiff to dismiss
a civil action “without order of the court” if the adverse party has not yet filed
an answer or a motion for summary judgment. A dismissal pursuant to Rule
41(a)(1)(i) is not subject to judicial review. See Randall v. Merrill Lynch, 820
F.2d 1317, 1320 (D.C. Cir. 1987).
Swift v. United States, 318 F.3d 250, 252–253 (D.C. Cir. 2003).
In this action, the Court has returns of service for five of the eight USAID employee
Defendants (docs. 39, 40, 49, 60, 70). The summons and complaint issued to the Republic of
Honduras has been returned marked “return to sender” (doc. 72). The Court does not have a
return of service for the summons and complaint issued to FHIS. The summons and complaints
have not issued as to the remaining Honduran Defendants. At this point, no answer or motion
for summary judgment has been filed. Thus, as in Swift, the action is at an early procedural
stage, and dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A) is appropriate. See also Fed. R. Civ.
P. 41(a)(1)(A)(i) (providing for voluntary dismissal by the plaintiff without a court order if a
notice of dismissal is filed “before the opposing party serves either an answer or a motion for
summary judgment”).
Moreover, two long-standing principles weigh in favor of the United States’ capacity to
dismiss this action. First, the power to pursue litigation on behalf of the United States is given
to the Executive Branch pursuant to Article II of the United States Constitution. U.S. Const. art.
11
II, § 3 (The President “shall take Care that the Laws be faithfully executed.”). Moreover,
prosecutorial decisions of the Executive Branch, civil or criminal, are generally unreviewable by
the Judicial Branch. Heckler v. Chaney, 470 U.S. 822, 831 (1985). Accordingly, the Court finds
that the United States has the unfettered right to dismiss the qui tam action.
However, as the Eleventh Circuit recognized “some circuits have said the government
may dismiss a relator’s claim so long as dismissal is rationally related to a valid government
purpose.” Everglades, 855 F. 3d at 1288 (citing Ridenour, 397 F. 3d at 936; Sequoia, 151 F. 3d at
1145). Therefore, in abundance of caution the Court will consider the two-step analysis found in
Ridenour and Sequoia.
The United States argues that it has satisfied the elements of Sequoia and has shown a
valid governmental purpose for dismissal and a rational relationship between dismissal and
accomplishment of the purpose (doc. 71, p. 2-4). The United States first argues that dismissal is
warranted because the Relators’ allegations lack merit and should not be prosecuted in the
United States’ name. In other words, dismissal would accomplish the valid government purpose
of declining to litigate a non-meritorious claim. The United States asserts that FHIS has made no
misrepresentations regarding its ability to contract with USAID, and therefore, the material
element of falsity is not present. The United States asserts that USAID appropriately determined
that FHIS is a “quasi-independent public agency” and “part of the Honduran government”, thus
USAID may contract with FHIS (Id., p. 13-15) The United States disagrees with the Relators that
an entity like FHIS must either be a fully integrated agency of the government, otherwise it is
private (doc. 71, p. 4). Instead it is the United States position that “FHIS is a fully public entity,
but one with a separate legal identity from the Government of Honduras.” (Id.)
12
Essentially, the Relators want this Court to find that the United States position on FHIS’
status is wrong, the United States decision to give aid to Honduras through FHIS was wrong, and
that the USAID employees who made the decisions and facilitated the aid are liable for this
wrong decision. However, a qui tam False Claims Act case is not an appropriate vehicle to
challenge official actions of a government agency. As explained above, a qui tam action is
brought on behalf of the United States when the United States has been defrauded. The United
States is adamant that it has not been defrauded. The Court finds that because the United States
does not believe that the Relators suit has merit, the decision to dismiss is rational.
The United States also argues that it has a valid government purpose because it has an
“interest in avoiding negative impact on its diplomatic relationship” with the Republic of
Honduras and avoiding possible interference with USAID’s mission, if the litigation continues
(doc. 55-1, p. 15-16). The United States also points out that the Republic of Honduras may have
a sovereign-immunity defense and the Honduran defendants may be beyond this Court’s
jurisdiction. Thus, dismissal would serve the United States’ interest in international comity. (Id.)
Again, the Court finds this explanation to be a rational reason to dismiss the case.
V. Conclusion
Upon consideration of the motion and brief in support, response, reply, additional
briefing, and the evidence and arguments presented at the hearing, the motion to dismiss is
GRANTED.
DONE and ORDERED this 30th day of January 2020.
s/ Kristi K. DuBose
KRISTI K. DuBOSE
CHIEF UNITED STATES DISTRICT JUDGE
13
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?