Simpson v. Leprino Foods Dairy Products Company
1:16-cv-00268
D. Colo.Mar 19, 2018Background
- Relator John Simpson, a USDA field inspector, sued Leprino Foods under the False Claims Act alleging it sold mozzarella to the federal government while using sodium hexametaphosphate ("sodium hex") in a manner that violates FDA standards of identity.
- Leprino has sold mozzarella to USDA programs since 2004 under C17 plant approval, with government purchases exceeding $644 million.
- FDA correspondence from 2004 told Leprino that direct addition of pure sodium hex to mozzarella was not permitted but indicated adding sodium hex pre-mixed into salt might be acceptable.
- USDA and FDA inspectors observed Leprino adding a sodium hex/salt mixture to molten cheese in 2013–2014; USDA warned in 2015 it might remove C17 status absent corrective action but nonetheless continued purchases in 2015.
- Simpson alleged Leprino knowingly misrepresented compliance to induce government purchases. Magistrate Judge Wang recommended dismissal for failure to plead fraud with particularity; District Judge Arguello adopted that recommendation and dismissed the complaint with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FCA claim pleads scienter with particularity under Rule 9(b) | Simpson: allegations and correspondence show Leprino knew its process was non-compliant and knowingly submitted false claims | Leprino: allegations are conclusory; correspondence shows transparency and no basis to infer knowledge of illegality | Dismissed — Complaint fails to plead scienter with the required particularity |
| Whether alleged misrepresentations (certifications of compliance) were identified with requisite specifics | Simpson: general allegations and timeline of correspondence suffice when read in context | Leprino: plaintiff fails to identify specific occasions or false statements made knowingly | Held for Leprino — plaintiff did not allege particular occasions or facts showing knowingly false statements |
| Whether FDA/USDA correspondence supports an inference of fraud | Simpson: 2004 FDA letter and later USDA communications demonstrate Leprino knew the conduct was prohibited | Leprino: 2004 letter permitted adding sodium hex when premixed with salt; inspectors reported Leprino described that practice, undermining an inference of knowing fraud | Held for Leprino — correspondence undermines, rather than supports, an inference of knowing deceit |
| Whether dismissal should be with or without prejudice (leave to amend) | Simpson: sought to amend (improperly, late and in a footnote) but asserted he could add allegations | Leprino: plaintiff has not identified facts he could plead to cure defects | Held: dismissal with prejudice — amendment would be futile given the record and the 2004 FDA guidance |
Key Cases Cited
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (materiality standard under FCA)
- U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702 (Rule 9(b) and FCA elements)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading standards, labels and conclusions insufficient)
- Seattle–First Nat’l Bank v. Carlstedt, 800 F.2d 1008 (Rule 9(b) requires time/place/content of false representations)
- Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246 (particularity and scienter pleading rules)
- Hall v. Bellmon, 935 F.2d 1106 (when leave to amend is futile)
- McNally v. United States, 483 U.S. 350 (FCA liability requires more than an objectively false statement; requires intent to deceive)