United States Ex Rel. Kasowitz Benson Torres LLP v. Basf Corp.
929 F.3d 721
D.C. Cir.2019Background
- Kasowitz Benson Torres LLP (relator) sued several chemical manufacturers (BASF, Covestro, Dow, Huntsman) under the False Claims Act (FCA), alleging they failed to report substantial-risk information about isocyanate chemicals to the EPA in violation of TSCA and thus deprived the government of money and property.
- Relator alleged defendants avoided TSCA civil penalties (money) and concealed substantial-risk information (property), asserting reverse false claims, conversion, and conspiracy theories seeking billions in damages; the government supported the defendants.
- The alleged nondisclosures occurred in part while defendants participated in the EPA’s voluntary Compliance Audit Program (CAP), which offered reduced penalties for late disclosures and reserved EPA enforcement rights.
- The district court granted defendants’ motion to dismiss for failure to state a claim; Kasowitz appealed.
- The D.C. Circuit reviewed de novo whether (1) unassessed TSCA penalties or CAP liabilities constitute an FCA “obligation” to pay, (2) the TSCA reporting duty requires transmission of property to the government, and (3) defendants possessed government-useable money or property for conversion liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unassessed TSCA civil penalties (or CAP liabilities) are an "obligation" to pay under the FCA reverse-false-claims provision | TSCA liability arises automatically on violation, so a penalty is an existing FCA “obligation” that defendants concealed/avoided | Unassessed regulatory penalties are contingent; EPA can remit or decline penalties, so no present obligation to pay exists for FCA purposes | Held: No. Unassessed TSCA/CAP penalties are not FCA obligations to pay; dismissal affirmed |
| Whether failing to report substantial-risk information to EPA is concealing or avoiding an obligation to "transmit" property under the FCA | The undisclosed substantial-risk information is the defendants’ property and TSCA’s reporting duty is an obligation to transmit that property to the government | TSCA imposes a regulatory duty to inform the EPA (regulatory interest), not a duty to transfer a property interest; government’s interest is regulatory, not proprietary | Held: No. TSCA reporting duty is not an obligation to transmit property; dismissal affirmed |
| Whether defendants committed "conversion" by possessing money or property "used, or to be used, by the Government" and delivering less than all of it | By withholding information and avoiding penalties, defendants possessed property/money the government could have used | There was no assessed penalty (no money possessed for government use) and no transferable property interest in the information | Held: No. Defendants did not possess government-useable money or property; conversion claim fails |
| Whether conspiracy claim (FCA) survives absent an underlying FCA violation | Conspiracy claim valid because defendants acted in concert to conceal information and obligations | Conspiracy liability requires an underlying actionable FCA violation | Held: No. Conspiracy fails because all underlying FCA theories were dismissed |
Key Cases Cited
- Cleveland v. United States, 531 U.S. 12 (2000) (distinguishes regulatory-program interests from traditional government property rights)
- Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989 (2016) (FCA is not for ordinary regulatory violations)
- Hoyte v. American Nat’l Red Cross, 518 F.3d 61 (D.C. Cir. 2008) (unassessed contingent penalties do not constitute an FCA "obligation")
- United States ex rel. Schneider v. JPMorgan Chase Bank, N.A., 878 F.3d 309 (D.C. Cir. 2017) (contingent exposure to penalties does not qualify as an FCA obligation)
- United States ex rel. Simoneaux v. E.I. duPont de Nemours & Co., 843 F.3d 1033 (5th Cir. 2016) (regulatory penalties typically not "established" until assessed)
- United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189 (10th Cir. 2006) (rejecting FCA property theory for routine regulatory paperwork)
- 3M Co. v. Browner, 17 F.3d 1453 (D.C. Cir. 1994) (distinguishes when liability for TSCA penalties accrues versus obligation to pay)