Kasowitz Benson Torres LLP v. Basf Corporation
Civil Action No. 2016-2269
| D.D.C. | Oct 23, 2017Background
- Kasowitz Benson Torres LLP (relator) sued chemical manufacturers (BASF, Covestro, Dow, Huntsman) under the False Claims Act (FCA), alleging they failed to report "substantial risk" information to EPA under TSCA §8(e) and thus avoided TSCA penalties.
- Relator’s claims are based on information obtained during prior civil discovery; defenda nts moved to dismiss and the U.S. Government filed a Statement of Interest supporting defendants’ reading of the FCA.
- Kasowitz pleaded reverse-FCA liability (31 U.S.C. § 3729(a)(1)(G)), conversion liability (31 U.S.C. § 3729(a)(1)(D)), and conspiracy (31 U.S.C. § 3729(a)(1)(C)).
- TSCA requires immediate reporting of information reasonably supporting a substantial risk finding; civil penalties are assessed through an administrative process that provides notice, opportunity for hearing, and final order before collection.
- The core legal dispute: whether unassessed/c ontingent TSCA penalties or undisclosed ‘‘substantial risk’’ information constitute an "obligation to pay" or "property" (or "money or property to be used by the Government") for FCA reverse and conversion theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an unassessed TSCA penalty is an "obligation to pay" under reverse-FCA § 3729(a)(1)(G) | An FCA "obligation" includes contingent/unassessed penalties; FERA broadened "obligation" to cover such duties | "Obligation" must be an "established" duty existing at the time of the conduct; unassessed penalties are contingent on government action | Dismissed: unassessed, contingent TSCA penalties are not FCA "obligations" for reverse-FCA purposes |
| Whether the required TSCA substantial-risk information constitutes "property" or "money or property to be used by the Government" | The undisclosed information is property and thus its nondisclosure supports reverse or conversion FCA liability | Even if information can sometimes be "property," TSCA's process means it is not government property or an "obligation" until the government determines/reporting was required and assessment is final | Dismissed: characterization of undisclosed information as "property" does not create reverse or conversion liability absent established government right or final assessment |
| Whether conversion provision (§ 3729(a)(1)(D)) covers contingent penalties or information "to be used" by the government | "To be used" shows conversion covers contingent future government use, including potential penalties | "To be used" requires property belong to or be clearly intended for government use at the time; contingent penalties/information not yet government property | Dismissed: conversion claim fails because property/penalties were not government property at time of alleged conduct |
| Conspiracy to violate FCA (§ 3729(a)(1)(C)) | Defendants conspired to conceal/report so that government would not assess penalties | No separate defense beyond rejecting underlying FCA violations | Dismissed: conspiracy claim fails because there is no underlying FCA violation |
Key Cases Cited
- United States ex rel. Bain v. Georgia Gulf Corp., 386 F.3d 648 (5th Cir.) (describing reverse-FCA as causing non-payment when payment is obligated)
- United States v. Q Int'l Courier, Inc., 131 F.3d 770 (8th Cir.) (held no FCA obligation where regulation provided a range and no fixed immediate duty to pay)
- Am. Textile Mfrs. Inst. v. The Limited, Inc., 190 F.3d 729 (6th Cir.) (contingent penalties not FCA obligations)
- Pemco Aeroplex, Inc. v. United States, 195 F.3d 1234 (11th Cir.) (contractual duties can create an "obligation" even if amount unsettled)
- United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189 (10th Cir.) (distinguishing existing debts from contingent penalties)
- United States v. Bourseau, 531 F.3d 1159 (9th Cir.) (obligation existed despite uncertain amount where party had been accepting government funds)
- United States ex rel. Simoneaux v. E.I. DuPont De Nemours & Co., 843 F.3d 1033 (5th Cir.) (unassessed regulatory penalties are not FCA obligations)
- United States ex rel. Petras v. Simparel, Inc., 857 F.3d 497 (3d Cir.) (an FCA obligation must exist at the time of the improper conduct and not depend on future discretionary acts)
- Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) (information can be property under some circumstances)
- Carpenter v. United States, 484 U.S. 19 (1987) (confidential business information recognized as property)