United States of America v. National Rural Utilities Cooperative Finance et al

Filing 177

MEMORANDUM AND ORDER - IT IS ORDERED: The Motion to Alter or Amend Judgment 167 , filed by the Relator Plaintiff John P. Raynor is denied; and the Statement of Interest 169 , filed by the United States of America is adopted in part as follows; This case is dismissed with prejudice as to Relator Plaintiff John P. Raynor, and without prejudice as to the United States of America. Ordered by Judge Laurie Smith Camp. (TEL)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
UNITED STATES OF AMERICA,
ex rel. JOHN P. RAYNOR,
Plaintiff,
v.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION, NATIONAL RURAL
ELECTRIC COOPERATIVE
ASSOCIATION, RANDALL B.
JOHNSTON, DELOITTE TOUCHE
USA, LLP, SHELDON C. PETERSEN,
JOHN J. LIST, STEVEN L. LILLY,
GLENN L. ENGLISH, ERNST &
YOUNG LLP, MOODY’S CORP.,
MOODY’S INVESTORS SERVICE,
INC., THE MCGRAW HILL
COMPANIES, INC., FITCH, INC., and
FITCH RATINGS, LTD.,
Defendants.

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CASE NO. 8:08CV48

MEMORANDUM
AND ORDER

This matter is before the Court on the Motion to Alter or Amend Judgment (Filing
No. 167), filed by the Relator Plaintiff John P. Raynor (“Raynor”).

Raynor seeks

reconsideration of the Court’s Amended Memorandum and Order of March 15, 2011 (the
“Order”) (Filing No. 166). Also before the Court is the Statement of Interest (Filing No. 169)
filed by the United States of America. The Court’s Order and the separate Judgment
(Filing No. 165), dismissed Raynor’s Third Amended Complaint (“TAC”) (Filing No. 36) with
prejudice. For the reasons discussed below, Raynor’s Motion will be denied; the United
States’ Statement of Interest will be adopted in part; and the dismissal of the action with
respect to the United States will be without prejudice.

BACKGROUND
Raynor brought this qui tam action under the False Claims Act (“FCA”), 31 U.S.C.
§ 3729(a)(1)-(3)1 on behalf of the United States of America, claiming to have knowledge
of Defendants’ activities, primarily those of National Rural Utilities Cooperative Finance
Corporation (“CFC”), that resulted in fraud upon the United States. The Court incorporates
herein, by reference, the factual and procedural history, and the analysis contained in its
Order. Raynor filed this Motion for Reconsideration on the grounds that the Court should
have given Raynor an opportunity to amend his Complaint for a fourth time and that the
Court’s analysis applied the law in error. The United States filed its Statement of Interest,
requesting that the Court consider certain legal arguments regarding the Court’s
interpretation of the FCA in addressing Raynor’s Motion. The United States also requests
that, should the Court find that dismissal is appropriate, the Court specify that dismissal is
without prejudice as to the United States.
STANDARD OF REVIEW
Raynor brings his motion under “Local Rule 7"2 and Federal Rule of Civil Procedure
59(e). (Filing No. 167 at 1.) “A district court has broad discretion in determining whether
to grant or deny a motion to alter or amend judgment pursuant to Rule 59(e) . . . .” United
States v. Metropolitan St. Louis Sewer Dist., 440 F.3d 930, 933 (8th Cir. 2006). “Rule
59(e) motions serve the limited function of correcting ‘manifest errors of law or fact[.]’” Id.
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Congress amended each of these sections in 2009, and the applicability of the
2009 amendments is addressed throughout the discussion section of the Court’s
previous Order. The TAC only referenced the prior versions of 31 U.S.C. § 3729(a)(1)(3).
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NECivR 7.0.1 refers generally to motion practice in this Court.
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(quoting Innovative Home Health Care v. P.T.-O.T. Assoc. of the Black Hills, 141 F.3d
1284, 1286 (8th Cir. 1998)) (internal quotation marks omitted). “Such motions cannot be
used to . . . tender new legal theories, or raise arguments which could have been offered
or raised prior to entry of judgment.” Id. (quoting Innovative Home Health Care, 141 F.3d
at 1286). Under the circumstances presented in this case, Raynor must demonstrate that
this Court made a manifest error of law or fact, and that this Court “should give fresh
consideration to [his] arguments because manifest injustice would otherwise result.” Sipp
v. Astrue, No. 10-3278, 2011 WL 2305618, at *4 (8th Cir. June 13, 2011).
DISCUSSION
I.

Legal Basis for Claims and United States’ Statement of Interest
Both Raynor and the United States question the sufficiency of the Court’s analysis

of the TAC under Federal Rule of Civil Procedure 12(b)(6). Raynor relies largely on
arguments already set forth in his original brief. The Court has carefully reviewed Raynor’s
arguments and, to the extent they differ from those put forth by the United States, has
identified no manifest error of law. The Court has also considered the United States’
arguments in its review of Raynor’s Motion. In general terms, the United States suggests
that the Court’s Order (1) conflates the elements of falsity and knowledge in its discussion
of objective falsity, imposing an intent requirement under the FCA; (2) inappropriately
shields the Defendants from liability based on the flexibility of generally accepted
accounting principles (“GAAP”); and (3) inappropriately states that reliance is an element
of an FCA violation. (See Filing No. 169.)

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To determine the sufficiency of Raynor’s allegations regarding the legal falsity of
the Defendants’ claims, the Court was required to consider whether Raynor alleged
sufficient facts from which the Court could infer that the Defendants knew that they had
violated a statute or regulation. See United States ex reI. Conner v. Salina Reg 'I Health
Center, Inc., 543 F.3d 1211,1217-19 (10th Cir. 2008) (to be actionable under the FCA, a
defendant’s claim based on a false certification must demonstrate that the defendant
knowingly failed to comply with a statute or regulation where such compliance was a
condition of payment). In other words, Raynor needed to allege that the Defendants knew
that CFC’s claims violated the law. At a minimum, Raynor would be required to allege that
the Defendants knew that their accounting practices, on which their certifications to the
government were based, were not within reasonable interpretations of “GAAP.” Thus,
even if Raynor was not required to allege intent, he was required to allege that the
Defendants knew their statements were legally insufficient. The TAC did not assert that
the Defendants knew their financial statements were outside the tolerable limits of GAAP,
and thus Raynor failed to state legal falsity under the FCA.
The United States also argues that the Court was required to consider the
reasonableness of the Defendants’ interpretation of GAAP before dismissing the claims.
The United States cites Minnesota Assoc. of Nurse Anesthetists v. Allina Health Sys.
Corp., 276 F.3d 1032 (8th Cir. 2002), for the proposition that a defendant that relies on an
unreasonable interpretation of a regulation will not be shielded from liability under the FCA
simply because the regulation could be subject to multiple interpretations. In Minnesota
Association of Nurse Anesthetists, the defendants were alleged to have billed the

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government for services they did not perform. The defendants alleged that a regulation
was ambiguous as to whether the services could be billed in the manner the defendants
billed them. Despite receiving a memorandum from the government clarifying how to bill
under the regulation, the defendants continued to bill for services in a manner contrary to
the memorandum. The Eighth Circuit stated that if “the [relator] shows the defendants
certified compliance with the regulation knowing that the [government] interpreted the
regulation in a certain way and that their actions did not satisfy the requirements of the
regulation as the [government] interpreted it, any possible ambiguity of the regulations is
water under the bridge.” Id. at 1053. In contrast, Raynor failed to allege that the
Defendants lacked any reasonable basis to believe that their certifications complied with
GAAP. In other words, the TAC failed to allege that the Defendants knew, or should have
known, that their interpretation of the flexible GAAP standards was outside tolerable
interpretation or unsupported by federal law.

Instead, the TAC made conclusory

statements to the effect that the Defendants’ actions were unsupported by GAAP. The
Eighth Circuit has stated that “it is important to remember that the standard for liability is
knowing, not negligent, presentation of a false claim.” Id. Despite the TAC’s factually
detailed allegations, Raynor failed to allege that the Defendants knowingly submitted
legally false claims, or claims that were based on certifications made on intolerable
interpretations of GAAP standards.
Finally, the Court’s decision should not be read to impose a reliance requirement
under the FCA. The Court used the terms “rely” and “reliance” in a single sentence of the
Order to describe the TAC’s lack of any allegation as to the “material effect” of the claims.
Regardless of the semantics of the Order, the TAC did not allege that the deficient
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materials submitted by the Defendants had any effect on the government’s decisions to
provide grants or loan money.
Although the United States’ arguments are well stated, if the Court were to modify
its decision to alleviate the concerns raised by the United States, such modifications would
not change the outcome of the Court’s decision. Nevertheless, the Court will alter its
Judgment to reflect that the dismissal is without prejudice as to the United States.
II.

Rule 9(b)
The Court also concludes that Raynor has not demonstrated any manifest error of

law in the Court’s analysis of the TAC under Federal Rule of Civil Procedure Rule 9(b).
Although the TAC contained an overabundance of factual detail, it lacked the requisite
clarity, focus, and sequence of logic regarding the Defendants’ alleged fraud against the
United States government.
Raynor claims it was manifest error for the Court to dismiss the TAC with prejudice,
without giving him an opportunity to amend. The Court will not repeat its analysis of the
TAC under Rule 9(b) here, but notes that Raynor has not stated how an additional
amendment would cure its deficiencies. Federal Rule of Civil Procedure 15 governs
motions to amend pleadings, and NECivR 15.1 requires that the “The motion for leave to
amend must (1) specifically state the proposed amendments and (2) state whether the
motion is unopposed or opposed, after conferring with opposing parties.” Raynor has not
submitted a proposed Fourth Amended Complaint, nor has he stated how any amendment
would meet the Rule 9(b) requirements as to each of the Defendants. The principal basis
for Raynor’s pending Motion is that the Court’s Order was legally unsound. For the
reasons stated in the Court’s Memorandum and Order, the TAC failed to allege fraud with
the particularity required by Rule 9(b). To allow Raynor to submit a Fourth Amended
Complaint would not be in the interests of justice.
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Accordingly,
IT IS ORDERED:
1.

The Motion to Alter or Amend Judgment (Filing No. 167), filed by the Relator
Plaintiff John P. Raynor is denied; and

2.

The Statement of Interest (Filing No. 169) filed by the United States of
America is adopted in part as follows;
This case is dismissed with prejudice as to Relator Plaintiff John P.
Raynor, and without prejudice as to the United States of America.

DATED this 29th day of June, 2011.

BY THE COURT:

s/Laurie Smith Camp
United States District Judge

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