United States of America v. Hooker Creek Asphalt and Paving, LLC et al

Filing 247

ORDER: Defendants' Motions to Dismiss 209 , 214 and 215 are granted. This action is dismissed, with prejudice. Signed on 5/26/2017 by Judge Michael J. McShane. (cp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

THE UNITED STATES OF AMERICA, ex
rel., MICHAEL RAY PERRY,
Plaintiffs,
v.

Case. No. 6:08-cv-6307-MC
OPINION AND ORDER

HOOKER CREEK ASPHALT & PAVING,
LLC, et al.,
Defendants.
_____________________________
Nearly ten years ago, relator Michael Ray Perry filed this complaint alleging defendants
violated the False Claims Act, 31 U.S.C. § 3729, by conspiring to defraud the United States over
many years in the construction of road projects. Judge Michael Hogan twice pointed out the
deficiencies in Perry’s complaint. A Ninth Circuit panel unanimously agreed Perry’s complaint
lacked the requisite particularity needed to support a fraud claim but, over a dissenting opinion,
concluded Judge Hogan should have granted Perry leave to amend as the allegations “could
potentially provide sufficient particularity to satisfy Rule 9(b).” United States ex rel. Perry v.
Hooker Creek Asphalt and Paving, LLC, 565 Fed.Appx. 669, 670 (9th Cir. 2014). Defendants
now move to dismiss Perry’s fourth attempt at providing sufficient facts to support his fraud

1—Opinion and Order

claims. Because Perry’s complaint still fails to state a claim under the False Claims Act, this
action is dismissed, with prejudice.
STANDARD OF REVIEW
To survive a motion to dismiss under rule 12(b)(6), a complaint must contain sufficient
factual matter that “state[s] a claim to relief that is plausible on its face.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face when the factual allegations
allow the court to infer the defendant’s liability based on the alleged conduct. Ashcroft v.
Iqbal, 556 U.S. 662, 663 (2009). The factual allegations must present more than “the mere
possibility of misconduct.” Id. at 678.
While considering a motion to dismiss, the court must accept all allegations of material
fact as true and construe them in the light most favorable to the non-movant. Burget v. Lokelani
Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000). But the court is “not bound to
accept as true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555. If
the complaint is dismissed, leave to amend should be granted unless the court “determines that
the pleading could not possibly be cured by the allegation of other facts.” Doe v. United States,
58 F.3d 494, 497 (9th Cir. 1995).
DISCUSSION
The parties, and now five judges, are quite familiar with Perry’s claims. Judge Hogan’s
previous opinions dismissing the case provide much more detail on both the alleged facts and
how Perry’s claims are “woefully lacking in detail.” United States ex rel. Perry v. Hooker Creek
Asphalt & Paving, LLC, 2012 WL 913229 at *2 (D. Or. March 16, 2012 Opinion) (quoting
December 13, 2011 Opinion)). It is worth noting Judge Callahan’s dissenting opinion in which
he suggests that the plaintiff’s ability to plead a claim is nothing more than aspirational:

2—Opinion and Order

I cannot agree with such speculation. Plaintiff in twice responding to motions to
dismiss never asserted individual claims with sufficient specificity. More
importantly, the majority does not identify any specific example that actually
contains sufficient particularity to support an individual claim. Rather the
majority suggests that some unspecified examples “could potentially provide
sufficient particularity.” This seems to me to be wishful thinking, particularly
because the district court noted, and plaintiff does not really contest, that plaintiff
does not have access to the information on billing, the records and practices
underlying the defendants’ billing for work performed, or “materials provided
relating to the road construction in issue.”
Having affirmed the district court’s dismissal of the second amended complaint
without in any way disagreeing with its reasoning, I cannot conclude that the
court abused its discretion in denying leave to amend. Indeed, insisting that
plaintiff be granted leave to file a third amended complaint appears to be a futile
exercise that unnecessarily burdens the district court and the defendants.
Accordingly, I would not have granted the petition for rehearing and I dissent
from the order remanding the case to the district court.
565 Fed.Appx. at 671-72 (emphasis added).
I too am cognizant of unduly burdening these parties and their attorneys. For that reason,
and because Perry’s new complaint does not fix the fatal flaws found in each earlier complaint, I
conclude that oral argument in this matter is unnecessary and unduly burdensome.
Over the past 9 years, the parties filed thousands of pages of briefs and exhibits. Despite
all those filings, Perry still admits that he “does not have access to the information, records and
practices underlying defendants’ bills for work performed and materials provided relating to road
construction and maintenance contracts at issue in this lawsuit. Such information is in the
exclusive possession or control of defendants and/or the United States.” Third Am. Compl., ¶ 47.
For one bringing a claim under the False Claims Act, this admission presents a problem. See
Cafasso, United States ex rel. v. Gen. Dynamics C4 Sys., Inc. 637 F.3d 1047, 1055 (9th Cir.
2011) (“It seems to be a fairly obvious notion that a False Claims Act suit ought to require a false
claim.”) (quoting United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995, 997
(9th Cir. 2002)).
3—Opinion and Order

Judge Hogan’s conclusion from over five years ago—a conclusion the Ninth Circuit
unanimously affirmed—rings equally true with respect to Perry’s now fourth bite at the apple:
There are no facts concerning the alleged false vouchers and cost schedules
caused to be presented to the federal government or when and by whom they were
submitted. It is simply not plausible that all defendants submitted falsified billings
for all projects for all work for the Oregon Department of Transportation over a
ten year period.
Furthermore, because there are insufficient allegations of the billings themselves,
the complaint fails to allege with the requisite specificity defendants’ intent vis-àvis the federal government, what information was presented to the federal
government (or even the Oregon Department of Transportation for that matter), or
what role the information provided in the federal government’s decision to pay (or
even what if anything the government paid). There are no allegations of facts
about what was contained in the claims for payment, whether the claims were
paid with or without adjustment, and whether the federal government viewed
payment as contingent on the absence of the alleged deficient testing or materials.
Mere conclusory allegations that the elements of the statutes in question are met
are inadequate to meet the pleading requirements in this case. Accordingly, the
complaint is dismissed.
2012 WL 913229 at *4.
Perry argues that because the contracts and bills are in the exclusive possession of the
government and/or defendants, the rigorous pleading standards for a False Claim Act should be
relaxed and he should be allowed to pursue his theories via discovery. The Ninth Circuit,
however, explicitly rejected Perry’s argument when it balanced that argument against the
purpose of the False Claims Act: to entice insiders to blow the whistle on fraudulent activities at
government expense. Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 999 (9th Cir. 2010)
(“To jettison the particularity requirement simply because it would facilitate a claim by an
outsider is hardly grounds for overriding the general rule, especially because the FCA is geared
primarily to encourage insiders to disclose information necessary to prevent fraud on the
government.”). Perry is not an “insider” within the meaning of the Act. An insider would have at
least some knowledge of the actual claims presented for payment.
4—Opinion and Order

According to the complaint, “Project Managers are delegated authority and responsibility
to enforce contract provisions.” Third Am. Compl., ¶ 33. Perry was not a project manager. Perry
was an Assistant Quality Assurance Coordinator (QAC). Id. at ¶ 42. Generally, QACs like Perry
were responsible for making sure contractors complied with specifications. Id. Perry’s complaint
essentially charges defendants with failing to comply with specifications. As Perry has not seen
the contracts or the bills defendants submitted, he merely assumes that defendants violated the
False Claims Act.
But “insider” knowledge of the actual claims is critical to any False Claims Act claim.
Such knowledge is even more critical when examining the actual contracts at issue here. 1 Section
00150.25 of the 2002 Edition of the Oregon Standard Specifications on Construction states:
00150.25 Acceptability of Materials and Work – The Contractor shall furnish
Materials and shall perform Work in Close Conformance to the Plans and
Specifications. If the Engineer determines that the Materials furnished or the
Work performed are not in Close Conformance with the Plans and Specifications,
the Engineer may:
Reject the Materials or Work and order the Contractor, at the Contractor’s
expense, to remove, replace, or otherwise correct any non-conformity; or
Accept the Materials or Work as suitable for the intended purpose, adjust
the amount paid for applicable Pay Items to account for diminished cost to the
Contractor or diminished value to the Agency, document the adjustment, and
provide written documentation to the Contractor regarding the basis of the
adjustment.
Knife River Memo., Ex. 1, 8; ECF No 209-1.
The Project Manager—as noted, Perry was never a Project Manager—“has the authority
and responsibility to enforce the provisions of the contract” and ensures that “the Project meets

1

Perry’s complaints specifically refer to and rely on the contracts and therefore the Court takes judicial notice of the
contracts at issue. Lee v. County of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). Perry also references and relies
on the 2002 version of the Oregon Quality Assurance Program Manual and Oregon Standard Specifications on
Construction. The Court takes judicial notice of those documents as well.

5—Opinion and Order

the requirements specified in the plans and specifications.” Id. at Ex. 2, 9. As Perry was not privy
to the contracts or submitted claims, he necessarily is in the dark as to whether any payment
amounts were adjusted given the alleged failure to comply with specifications. As the False
Claims Act requires an actual false claim, any adjustments made for failing to meet
specifications—clearly allowable in Oregon—would torpedo Perry’s claim. Oblivious to whether
any adjustments were made here, Perry simply seeks to fish out these claims through discovery.
The pleading requirements, however, are not relaxed merely to allow an “outsider” such as Perry
to bring a claim. Lungwitz, 616 F.3d at 999.
Likewise, Perry has no knowledge as to whether defendants submitted truthful claims
that the government simply paid anyway. Perry simply assumes the worst, alleging a seemingly
vast conspiracy, over nearly a decade, between private contractors and ODOT Project Managers
over nearly all state highway construction projects. I assume, without deciding, that such a grand
scheme could perhaps be possible. But considering Perry lacks knowledge as to a single claim
actually submitted, I decline to overlook the “obvious alternative explanations” to Perry’s claims.
Cafasso, 637 F.3d at 1057 (“In light of Cafasso’s failure to identify any particular false claims or
their attendant circumstances, as well as the ‘obvious alternative explanation’ that no false claims
occurred, we will not draw the unwarranted and implausible inference that discovery will reveal
evidence of such false claims.”).
Interestingly enough, Perry’s complaints actually provide support for the “obvious
alternative explanation” that any payments to defendants were simply adjusted downward for
any failures to comply with specifications. Defendants provide numerous detailed examples in
their thorough briefings. To pick just one of the many examples, defendants point to ¶ 144 of the
Third Amended Complaint. There, Perry alleges:

6—Opinion and Order

This project consisted of building a small bridge in Sliver Lake. By 2006,
defendant knew that the work it performed on the project had failures of
specifications for earthwork (00330) and concrete bridges (00540). Despite such
knowledge, it submitted claims on the subcontract, in an amount to be
determined, for such non-conforming work.
Elsewhere, as (again) pointed out by defendants, Perry’s own allegations confirm that
there in fact was no false claim. Perry alleges, “Although the contract required the addition of fly
ash into the concrete mix, defendant produced the concrete without fly ash. After this deficiency
had been revealed to ODOT, defendant submitted a new mix design without fly ash.” Third Am.
Compl., ¶ 153. These are just two of many examples. Already too much time and ink has been
spent on this False Claims Act claim brought by a relator who admits having no knowledge, of
any kind, regarding any claim actually submitted.
It is clear that Perry is unable to properly plead a False Claims Act claim due to his status
as an “outsider” with no access to the claims at issue. After all, “[A]n actual false claim is ‘the
sine qua non of a[n FCA] violation.’” Cafasso, 637 F.3d at 1055 (quoting Aflatooni, 314 F.3d at
1002). Perry includes no specifics regarding who specifically made the claim, what the claim
specifically contained, and why the claim was false. In short, Perry fails to allege not only the
who, what, where and when of the fraudulent actions, but he also neglects to allege, in any
meaningful way, “what is false or misleading about [the purportedly fraudulent] statement, and
why it is false.” Id. (quoting Lungwitz, 616 F.3d at 998) (alteration in original).
It appears that this scenario, where: (1) a QAC witnessed concerning construction
techniques; (2) the QAC reported those concerns to his superiors; and (3) the QAC alleges he
was terminated for raising such concerns, is a garden-variety employment retaliation case. But
Perry brought those claims in his employment case preceding this action. As a result, Perry is left
trying to shoe-horn his claims into the False Claims Act. Considering he lacks any information

7—Opinion and Order

on any actual claims submitted, Perry’s task is an insurmountable one. As stated above, this
action is dismissed, with prejudice. 2
CONCLUSION
Defendants’ motions to dismiss, ECF Nos. 209, 214, and 215, are GRANTED. This
action is DISMISSED, with prejudice.
IT IS SO ORDERED.
DATED this 26th day of May, 2017.

_______/s/ Michael J. McShane________
Michael McShane
United States District Judge

2

Because Perry’s lack of direct knowledge regarding the claims is fatal, I need not discuss the multiple other
arguments defendants raise on the motions to dismiss. That said, several of those arguments appear to be strong
ones.

8—Opinion and Order