USA ex rel Mark Christopher Tracy v. Emigration Improvement District et al

Filing 226

AMENDED MEMORANDUM DECISION AND ORDER granting 207 Motion to Dismiss Third Amended Complaint; granting 208 Motion to Dismiss Relators Third Amended Complaint; granting 210 Motion to Dismiss Relators Third Amended Complaint; dism issing with prejudice 204 Mr. Tracys Third Amended Complaint as to the following defendants: Emigration Improvement District; Fred A. Smolka; Michael Hughes; Mark Stevens; David Bradford; Lynn Hales; Eric Hawkes; R. Steve Creamer; and Carollo Engin eers. Mr. Tracy is ORDERED to show cause as to why his third amended complaint should not be dismissed with prejudice as to the remaining defendants. Alternatively, Mr. Tracy may voluntarily dismiss his remaining claims. Mr. Tracy shall respond accordingly on or before Friday, June 22, 2018. Signed by Judge Jill N. Parrish on 6/22/2018. (jds)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
UNITED STATES OF AMERICA ex rel.
MARK CHRISTOPHER TRACY,

AMENDED 1 MEMORANDUM DECISION
AND ORDER GRANTING MOTIONS TO
DISMISS

Plaintiff,
v.
EMIGRATION IMPROVEMENT DISTRICT,
et al.,

Case No. 2:14-cv-00701
District Judge Jill N. Parrish

Defendants.

I.

INTRODUCTION

In the words of Relator Mark Christopher Tracy, “This lawsuit is simple.” He asserts two
causes of action. Both arise under the False Claims Act. The first is barred by the applicable
statute of limitations because the alleged violations occurred almost ten years before Mr. Tracy
filed suit. The second fails because it is based on conclusory allegations that are contradicted by
a document that Mr. Tracy incorporated by reference into his complaint. Mr. Tracy has amended
his complaint three times, and letting him do so a fourth time would prove futile. Accordingly,
Mr. Tracy’s third amended complaint is dismissed with prejudice as to the defendants that have
moved to dismiss.

1

This memorandum decision and order has been amended to correct the typographical errors
identified by Mr. Tracy in his response to the court’s order to show cause (ECF No. 225).

II.

STATEMENT OF FACTS

Mr. Tracy’s third amended complaint spans 93 pages. There are twenty-two named
defendants 2 and 145 unnamed “Doe” defendants. For the sake of brevity, the court highlights the
most salient points, of which there are few:
Defendant Emigration Improvement District, which the court will refer to as the District,
is a special service district organized under the laws of the State of Utah. The District was
created to provide water and sewer services to the residents of Emigration Canyon, a township in
Salt Lake County, Utah. The District has the power to issue bonds, charge fees and assessments,
and levy taxes on the residents of Emigration Canyon.
On or about September 29, 2004, the District received the final disbursement of a $1.846
million loan. The loan came from Utah’s Drinking Water State Revolving Fund, which uses
federal funds to finance the construction of water systems for drinking or culinary water.
Mr. Tracy filed his initial complaint on September 26, 2014. His current complaint, the
third amended complaint, alleges two causes of action under the False Claims Act. First, he
alleges that the District and its co-conspirators made false statements that induced the
Government to disburse the proceeds of the $1.846 million loan. Second, he alleges that the
District, after the loan proceeds were disbursed, failed to comply with conditions of the loan and
failed to report this noncompliance to the Government.

2

The twenty-two named defendants are Emigration Improvement District; Barnett Intermountain
Water Consulting; Carollo Engineers, Inc.; Aqua Environmental Services, Inc.; Aqua
Engineering, Inc.; R. Steve Creamer; Fred A. Smolka; Michael Hughes; Mark Stevens; David
Bradford; Lynn Hales; Eric Hawkes; Don A. Barnett; Joe Smolka; Ronald R. Rash; Kenneth
Wilde; Michael B. Georgeson; Kevin W. Brown; Robert Rousselle; Larry Hall; The Boyer
Company, L.C.; and City Development, Inc.
Mr. Tracy voluntarily dismissed his claims against Aqua Environmental Services, Inc.; Aqua
Engineering, Inc.; Robert Rouselle; and Larry Hall. And Mr. Tracy has not served The Boyer
Company, L.C. and City Development, Inc.

2

III.

DISCUSSION

A number of the defendants move to dismiss Mr. Tracy’s third amended complaint with
prejudice. 3 First, these defendants argue that the first cause of action is barred by the six-year
statute of limitations found at 31 U.S.C. § 3731(b)(1). Second, these defendants argue that the
second cause of action fails to state a claim because Mr. Tracy has not alleged that the
defendants were obligated to pay or transmit money or property to the Government, a
requirement of the provision upon which Mr. Tracy bases the second cause of action. The court
agrees with both arguments and concludes that it would be futile to let Mr. Tracy amend his
complaint for a fourth time. Accordingly, Mr. Tracy’s third amended complaint is dismissed with
prejudice as to the defendants that have moved to dismiss.
A. MOTION STANDARD: RULE 12(b)(6)
Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss a claim
upon which relief cannot be granted. The court’s function on a Rule 12(b)(6) motion is not to
weigh potential evidence that the parties may present at trial but to assess whether a party’s
allegations are legally sufficient to state a claim upon which relief can be granted. Dubbs v. Head
Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003).
A complaint must contain “a short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a). This standard “does not require ‘detailed factual
allegations,’ but it demands more than an unadorned, the defendant-unlawfully-harmed-me
accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007)). Where the allegations are merely “label and conclusions” or a “formulaic

3

The defendants that have moved to dismiss are Emigration Improvement District; Fred A.
Smolka; Michael Hughes; Mark Stevens; David Bradford; Lynn Hales; Eric Hawkes; R. Steve
Creamer; and Carollo Engineers.

3

recitation of the elements of a cause of action,” the plaintiff’s claim will not survive a motion to
dismiss. Twombly, 550 U.S. at 555.
Moreover, “[a] complaint is subject to dismissal for failure to state a claim if the
allegations, taken as true, show the plaintiff is not entitled to relief.” Jones v. Bock, 549 U.S. 199,
215 (2007). “If the allegations, for example, show that relief is barred by the statute of
limitations, the complaint is subject to dismissal for failure to state a claim . . . .” Id.; see also
Aldrich v. McCulloch Props., Inc., 627 F.2d 1036, 1041 n.4 (10th Cir. 1980) (“While the statute
of limitations is an affirmative defense, when the dates given in the complaint make clear that the
right sued upon has been extinguished, the plaintiff has the burden of establishing a factual basis
for tolling the statute.”).
B. THE FIRST CAUSE OF ACTION: DIRECT FALSE CLAIMS UNDER 31 U.S.C. § 3729
Mr. Tracy alleges that “Defendants knowingly presented or caused to be presented a false
or fraudulent claim to an officer or employee of the United States Government—or to a
contractor, grantee, or other recipient—in order to induce disbursement of $1.846 million in
federal funds,” Third Am. Compl. ¶ 502, and that “Defendants knowingly made, used, or caused
to be made or used, a false record or statement to get a false or fraudulent claim paid or approved
by the United States Government—or by a contractor, grantee, or other recipient—in order to
induce disbursement of $1.846 million in federal funds,” Third Am. Compl. ¶ 507. Specifically,
the District and its co-conspirators “made misrepresentations to the federal government or its
agents that induced the federal government or its agents to disburse the $1.846 million loan.”
Third Am. Compl. at 8. “On or about September 29, 2004, [the District] received the final
disbursement of [the] . . . $1.846 million loan . . . .” Third Am. Compl. ¶ 40.
The first cause of action is based on § 3729(a)(1)(A) and § 3729(a)(1)(B), which impose
liability on any person who (A) “knowingly presents, or causes to be presented, a false or
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fraudulent claim for payment or approval” or (B) “knowingly makes, uses, or causes to be made
or used, a false record or statement material to a false or fraudulent claim.” § 3729(a)(1)(A), (B).
Section 3730(b)(1) provides that “[a] person may bring a civil action for violation of section
3729 . . . .”
Section 3731(b) provides the applicable statute of limitations for claims brought under
§ 3730:
(b)

A civil action under section 3730 may not be brought—
(1)

more than 6 years after the date on which the violation of section
3729 is committed, or

(2)

more than 3 years after the date when facts material to the right of
action are known or reasonably should have been known by the
official of the United States charged with responsibility to act in
the circumstances, but in no event more than 10 years after the date
on which the violation is committed, which occurs last.

But the statute of limitations found at § 3731(b)(2) “was not intended to apply to private qui tam
relators.” United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702,
725 (10th Cir. 2006). So only the six-year statute of limitations found at § 3731(b)(1) “applies to
actions pursued by private qui tam relators.” United States ex rel. Told v. Interwest Const. Co.,
267 F. App’x 807, 809 (10th Cir. 2008); see also Sikkenga, 472 F.3d at 725–26. 4

4

Mr. Tracy, citing United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217 (9th Cir.
1996), and United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081, 1088–90 (11th
Cir. 2018), argues that “the better-reasoned cases” have allowed private qui tam relators to rely
on the statute of limitations found at § 3731(b)(2). But these cases are contrary to the Tenth
Circuit’s holding in Sikkenga, and this court must follow Tenth Circuit precedent, irrespective of
the court’s views as to the “advantages of the precedent of [other] circuits.” United States v.
Spedalieri, 910 F.2d 707, 709 n.2 (10th Cir. 1990). The Tenth Circuit has also declined, at least
once, to reconsider its interpretation of § 3731(b): “Because ‘[w]e are bound by the precedent of
prior panels absent en banc reconsideration or a superseding contrary decision by the Supreme
Court, we decline [the relator’s] novel invitation to revisit our decision in Sikkenga.’” Told, 267
F. App’x at 809 (citation omitted).

5

1. The First Cause of Action is Barred by the Statute of Limitations
Mr. Tracy is a private qui tam relator. The Government declined to intervene in this case
on three separate occasions. Mr. Tracy urges to court to disregard Tenth Circuit precedent and
apply the statute of limitations found at § 3731(b)(2). See supra note 4. But this court is bound
by Tenth Circuit precedent, and the Tenth Circuit has held that the six-year statute of limitations
found at § 3731(b)(1) applies to actions pursued by private qui tam relators. Consequently, a sixyear statute of limitations applies to Mr. Tracy’s first cause of action. 5
Here, Mr. Tracy’s claims are barred by the six-year statute of limitations. First, any
alleged violation of § 3729(a)(1)(A) or § 3729(a)(1)(B) must necessarily have occurred on or
before September 29, 2004, the date on which the District received “the final disbursement of
5

The Tenth Circuit refers to § 3729(b)(1) as a six-year statute of limitations. Sikkenga, 472 F.3d
at 726 (“[W]e are hard pressed to describe a circumstance where the six year statute of
limitations in § 3731(b)(1) would be applicable.”); Told, 267 F. App’x at 809 (“[T]he [False
Claims Act’s] six-year statute of limitations applies to actions pursued by private qui tam
realtors.”). But when a private qui tam relator brings suit, § 3731(b)(1) technically operates as a
statute of repose, not a statute of limitations. “A statute of repose ‘bar[s] any suit that is brought
after a specified time since the defendant acted . . . , even if this period ends before the plaintiff
has suffered a resulting injury.” CTS Corp. v. Waldburger, 134 S. Ct. 2175, 2182 (2014) (citation
omitted). The central difference between a statute of limitations and a statute of repose is that
statutes of limitations “are subject to equitable tolling, a doctrine that ‘pauses the running of, or
“tolls,” a statute of limitations when a litigant has pursued his rights diligently but some
extraordinary circumstance prevents him from bringing a timely action.’” Id. at 2183 (citation
omitted). In contrast, a statute of repose “generally may not be tolled, even in cases of
extraordinary circumstances beyond a plaintiff’s control.” Id. Section 3731(b), when applied to
claims brought by private qui tam relators, provides: “A civil action under section 3730 may not
be brought . . . more than 6 years after the date on which the violation of section 3729 is
committed.” Thus, under the Tenth Circuit’s interpretation, § 3731(b) bars all suits brought by
private qui tam relators (but not the Government) if the suit is brought six years after the
underlying violation; there is no tolling. In short, the Tenth Circuit has interpreted § 3731(b) so
that private qui tam relators cannot sue persons who violate the False Claims Act if six years
have passed since the date of the violation. Cf. CTS Corp., 134 S. Ct. at 2183 (“[A] statute of
repose is a judgment that defendants should ‘be free from liability after a legislatively
determined period of time, beyond which the liability will no longer exist and will not be tolled
for any reason.’” (citation omitted)). Nevertheless, the court, so as to maintain consistency with
the Tenth Circuit, will refer to § 3729(b)(1) as a statue of limitations, even if it is a bit of
misnomer.

6

[the] . . . $1.846 million loan.” (emphasis added). 6 Mr. Tracy’s explains that his first cause of
action is based on a theory that the District and its co-conspirators violated the False Claims Act
by making false statements to the Government that induced the Government to disburse the
$1.846 million loan. Any false statements that induced the Government to disburse the $1.846
million loan must necessarily have occurred before the date of the final disbursement: September
29, 2004. Second, Mr. Tracy filed this action on September 26, 2014—almost ten years after the
last possible date on which the defendants allegedly violated § 3729(a)(1)(A) or § 3729(a)(1)(B)
by making false statements to the Government. Accordingly, Mr. Tracy’s first cause of action is
barred by § 3731(b) because it was brought almost ten years after the defendants supposedly
violated § 3729(a)(1)(A) or § 3729(a)(1)(B).
2. The First Cause of Action Must Be Dismissed with Prejudice
“A dismissal with prejudice is appropriate where a complaint fails to state a claim . . . and
granting leave to amend would be futile.” Brereton v. Bountiful City Corp., 434 F.3d 1213, 1219
(10th Cir. 2006). Mr. Tracy has amended his complaint not once, not twice, but three times.
More importantly, his first cause of action is undoubtedly barred by the applicable statute of
limitations. Giving Mr. Tracy a fourth chance to amend his first cause of action would prove
futile, wasting both the court’s and the parties’ time. Accordingly, the first cause of action is
dismissed with prejudice as to the defendants that have moved to dismiss.
C. THE SECOND CAUSE OF ACTION: REVERSE FALSE CLAIMS UNDER 31 U.S.C. § 3729
Mr. Tracy alleges that the District “knowingly made, used, or caused to be made or used,
a false record or statement material to an obligation to pay or transmit money or property to the
United States Government, or knowingly concealed or knowingly and improperly avoided or

6

The court assumes without deciding that the first cause of action states a violation of § 3729.

7

decreased an obligation to pay or transmit money or property to the United States Government.”
Third Am. Compl. ¶ 516. Specifically, Mr. Tracy alleges that the District defaulted on the loan
by failing to comply with certain conditions and, because it was in default, the District was
obligated to transmit money to the Government. Third Am. Compl. ¶¶ 529–30.
The second cause of action is based on § 3729(a)(1)(G), which imposes liability on any
person who (1) “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
(2) “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay
or transmit money or property to the Government.” 7 The term “obligation,” as it is used in the
False Claims Act, means “an established duty, whether or not fixed, arising from an express or
implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based
relationship or similar relationship, from statute of regulation, or from the retention of any
overpayment.” § 3729(b)(3) (emphasis added).
Mr. Tracy concedes that he is relying on the second provision of § 3729(a)(1)(G). 8 Thus,
to state a claim to relief, Mr. Tracy’s allegations must plausibly establish that the District
7

Claims brought under § 3729(a)(1)(G) have been referred to as reverse false claims: “instead of
creating liability for wrongfully obtaining money from the government, the reverse-false-claims
provision creates liability for wrongfully avoiding payments that should have been made to the
government.” United States ex rel. Barrick v. Parker-Migliorini Int’l, LLC, 878 F.3d 1224, 1226
(10th Cir. 2017).
8

The court assumes without deciding that Mr. Tracy can rely on the second provision of
§ 3729(a)(1)(G). In 2009, Congress amended the False Claims Act. Fraud Enforcement and
Recovery Act of 2009, Pub. L. No. 111-21, § 4, 123 Stat. 1617, 1621 (2009). At that time,
Congress included the provision upon which Mr. Tracy relies: “Congress added a second route to
liability . . . . This second route to liability expands on the first by not requiring a ‘false record or
statement.’ Simply ‘knowingly and improperly avoid[ing] . . . an obligation to pay or transmit
money or property to the Government’ is enough.” Barrick, 878 F.3d at 1230. Congress provided
that the amendment to § 3729(a)(1)(G) “shall take effect on the date of enactment [May 20,
2009] . . . and shall apply to all conduct on or after the date of enactment.” Pub. L. No. 111-21,
§ 4(f), 123 Stat. at 1625 (emphasis added).

8

knowingly concealed or knowingly and improperly avoided or decreased an obligation to pay or
transmit money or property to the Government. See § 3729(a)(1)(G). The defendants contend
that Mr. Tracy has not alleged that the District was obligated to pay or transmit money or
property to the Government. The court agrees.
1. Mr. Tracy’s Allegations Do Not Plausibly Establish That the District Was Obligated
to Pay or Transmit Money or Property to the Government
Mr. Tracy alleges in a conclusory manner that “[b]ecuase [the district] . . . defaulted on
the loan, it has an established duty to transmit or pay money to the United States Government.”
Third Am. Compl. ¶ 530. But this allegation is nothing more than an unsupported legal
conclusion—so the court disregards it. Iqbal, 556 U.S. at 680 (noting that the Court, in Twombly,
implicitly held that plaintiff’s assertion of an “unlawful agreement” was a legal conclusion not
entitled to an assumption of truth). Curiously, Mr. Tracy says nothing about whether the terms of
the loan required the District to transmit money or property to the Government in the event of
default. Indeed, nowhere in the third amended complaint does Mr. Tracy allege facts showing
that the District was obligated to transmit money or property to the Government in the event of
default. Consequently, Mr. Tracy has not sufficiently alleged that the District was “obligat[ed] to
pay or transmit money or property to the Government” and thus his second cause of action does
not state a claim to relief.
2. The Terms of the Loan Contradict Mr. Tracy’s Conclusory Allegations
Even if the court credits Mr. Tracy’s conclusory allegations (it cannot), the allegations
are contradicted by the terms of the loan. Mr. Tracy did not attach the loan documents to his third
amended complaint. But the court can nevertheless consider the terms of loan at this stage
because: (1) the loan is referenced in the third amended complaint, (2) the terms of the loan are
central to Mr. Tracy’s claims, and (3) the defendants have attached a copy of the loan documents

9

to their motion, and Mr. Tracy has not challenged their authenticity. See Toone v. Wells Fargo
Bank, N.A., 716 F.3d 516, 521 (10th Cir. 2013) (“Courts are permitted to review ‘documents
referred to in the complaint if the documents are central to the plaintiff’s claim and the parties do
not dispute the documents’ authenticity.’” (citation omitted)). 9
The terms of the loan documents contradict Mr. Tracy’s conclusory allegations. Mr.
Tracy alleges that the District defaulted on the loan and was therefore required to pay or transmit
money or property to the Government. Third Am. Compl. ¶ 530. But this conclusory allegation
finds no support in the loan documents, which provide:
Section 5.1. Default and Remedies. Failure of the [the District] to perform
any covenant or requirement of the [the District] under this Bond Resolution
within thirty (30) days after having been notified in writing by a Bondholder 10 of
such failure, shall constitute an event of default hereunder and shall allow each
Bondholder to take the following enforcement remedies:
(a) The Bondholder may require the [the District] to pay an interest
penalty equal to eighteen percent (18%) per annum of the outstanding principal
amount on the Series 2002 Bonds and the Hardship Grant Assessment, said
interest penalty to accrue from the date of the notice of the Bondholder to the [the
District] referenced hereinabove until the default is cured by the [the District].
Said interest penalty shall be paid on each succeeding payment date until the
default is cured by the [the District].
(b) The Bondholder may appoint a trustee bank to act as a receiver of the
Revenues of the System for the purposes of applying said Revenues toward the
Revenue allocations required in Section 3.4 herein and in general protecting and
enforcing each Bondholder’s right thereto, in which case, all administrative costs
of the trustee bank in performing said function shall be paid by the [the District].
Notably, an event of default occurs only if the District fails “to perform any covenant or
requirement of the [the District] under this Bond Resolution within thirty (30) days after having
been notified in writing by a Bondholder of such failure.” (emphasis added). And if there is an
9

Moreover, the defendants requested that the court consider the terms of the loan, and Mr. Tracy
did not oppose the request.
10

“Bondholder” is defined as “the registered holder of any Series 2002 Bond . . . .”

10

event of default, “[t]he Bondholder may require [the District] to pay an interest penalty.”
(emphasis added).
Here, Mr. Tracy fails to allege that there was an event of default because he does not
allege that the District was “notified in writing” that it had failed to perform a covenant or
requirement of the loan. Because Mr. Tracy did not allege an event of default, the District, taking
Mr. Tracy’s allegations as true, was not required to pay an interest penalty and thus the District
was not “obligat[ed] to pay or transmit money or property to the Government.” See
§ 3729(a)(1)(G); Barrick, 878 F.3d at 1231 (“[P]otential obligations [are] not actionable under
the [False Claims Act].”). And even if Mr. Tracy alleged an event of default (he did not), he did
not allege that the Bondholder required the District to pay an interest penalty: as the loan
provides, “[t]he Bondholder may require [the District] to pay an interest penalty.” (emphasis
added). That is, even if there was an event of default, the District was not necessarily required to
pay an interest penalty. In short, the terms of the loan are inconsistent with Mr. Tracy’s
allegation that the District was in default and was therefore required to pay or transmit money or
property to the Government. Consequently, the second cause of action fails to state a claim that
is plausible and must be dismissed.
3. The Second Cause of Action and thus the Third Amended Complaint Must Be
Dismissed with Prejudice
As noted above, “[a] dismissal with prejudice is appropriate where a complaint fails to
state a claim . . . and granting leave to amend would be futile.” Brereton, 434 F.3d at 1219. Mr.
Tracy has had four opportunities to state a claim against the defendants. He has been unable to
do so. At this point, it is apparent that Mr. Tracy cannot state a claim for relief against the
defendants because he has none. As such, Mr. Tracy’s second cause of action, and thus his
complaint, is dismissed with prejudice as to the defendants that have moved to dismiss the

11

complaint. See Barrick, 878 F.3d at 1233 (affirming district court decision to dismiss complaint
with prejudice because relator could not allege that there was an “established duty” to pay the
Government).
IV.

CONCLUSION

The following motions are GRANTED: Motion to Dismiss Third Amended Complaint
(ECF No. 207); Motion to Dismiss Relator’s Third Amended Complaint (ECF No. 208); and
Motion to Dismiss Relator’s Third Amended Complaint (ECF No. 210).
Mr. Tracy’s Third Amended Complaint (ECF No. 204) is DISMISSED WITH
PREJUDICE as to the following defendants: Emigration Improvement District; Fred A. Smolka;
Michael Hughes; Mark Stevens; David Bradford; Lynn Hales; Eric Hawkes; R. Steve Creamer;
and Carollo Engineers.
Mr. Tracy is ORDERED to show cause as to why his third amended complaint should not
be dismissed with prejudice as to the remaining defendants. Alternatively, Mr. Tracy may
voluntarily dismiss his remaining claims. Mr. Tracy shall respond accordingly on or before
Friday, June 22, 2018.

Signed June 22, 2018
BY THE COURT

______________________________
Jill N. Parrish
United States District Court Judge

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