United States ex rel. Kasowitz Benson Torres LLP v. BASF Corp.
285 F. Supp. 3d 44
D.C. Cir.2017Background
- Kasowitz Benson Torres LLP (relator) sued BASF, Covestro, Dow, and Huntsman under the False Claims Act (FCA), alleging they failed to report "substantial risk" information to EPA under TSCA §8(e) and thereby avoided TSCA civil penalties.
- Defendants allegedly obtained information during manufacture/processing of isocyanates that reasonably supported a conclusion of substantial risk but did not disclose it to EPA.
- Kasowitz pleads reverse false claims (31 U.S.C. § 3729(a)(1)(G)), conversion under the FCA (31 U.S.C. § 3729(a)(1)(D)), and conspiracy (31 U.S.C. § 3729(a)(1)(C)).
- TSCA prescribes a multi-step enforcement process for civil penalties: notice, opportunity for hearing, assessment order, finality or judicial judgment, then recovery by the Attorney General.
- Court evaluates whether unassessed, contingent TSCA penalties or undisclosed substantial-risk information constitute an "obligation to pay" or "property/money used or to be used by the Government" under the FCA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unassessed TSCA penalties are an "obligation to pay" under the reverse-FCA provision | Kasowitz: FERA broadened "obligation" to include contingent/unassessed penalties and duties not fixed in amount | Defendants/Government: "Obligation" must be an established duty at time of the conduct; unassessed penalties are contingent | Held: Unassessed, contingent TSCA penalties are not an "obligation" under § 3729(a)(1)(G); reverse-FCA claims dismissed |
| Whether substantial-risk information qualifies as "property" such that withholding it violates reverse-FCA or conversion provisions | Kasowitz: The information itself is property and its nondisclosure constitutes withholding property or avoiding an obligation | Defendants: Even if information is "property," TSCA's process means government ownership/obligation is not established until assessment; information disclosure does not create an obligation | Held: Characterizing the information as "property" does not establish an FCA reverse or conversion claim; claims dismissed |
| Whether conversion provision covers "money or property used, or to be used, by the Government" when contingent | Kasowitz: "To be used" shows Congress intended to cover contingent future government use, including potential penalties | Defendants: The phrase does not reach contingent, unassessed penalties; government must own or have an established right to the property/money | Held: Conversion claim fails because the government had no ownership or established right to unassessed penalties or the information at time of alleged conduct |
| Whether conspiracy claim can stand without underlying FCA violation | Kasowitz: Alleged concerted scheme to conceal/report late substantial-risk information | Defendants: No underlying FCA violation, so no cognizable conspiracy | Held: Conspiracy claim dismissed because it depends on underlying FCA violations that were not stated |
Key Cases Cited
- United States v. Q Int'l Courier, Inc., 131 F.3d 770 (8th Cir. 1997) (holds an FCA "obligation" requires an existing, specific legal duty to pay a fixed sum)
- American Textile Mfrs. Inst. v. The Limited, Inc., 190 F.3d 729 (6th Cir. 1999) (contingent penalties not actionable as reverse-FCA obligations)
- United States ex rel. Pemco Aeroplex, Inc., 195 F.3d 1234 (11th Cir. 1999) (contractual duties can constitute an "obligation" even if amount is uncertain)
- United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189 (10th Cir. 2006) (distinguishes existing debts from contingent penalties; obligations must arise independently of the fraud)
- United States v. Bourseau, 531 F.3d 1159 (9th Cir. 2008) (fines/penalties not "existing" obligations prior to assessment)
- United States ex rel. Simoneaux v. E.I. DuPont De Nemours & Co., 843 F.3d 1033 (5th Cir. 2016) (unassessed regulatory penalties under TSCA are not FCA "obligations")
- United States ex rel. Petras v. Simparel, Inc., 857 F.3d 497 (3d Cir. 2017) (an FCA "obligation" must exist at time of the improper conduct and not depend on future discretionary acts)
- United States ex rel. Harper v. Muskingum Watershed Conservancy Dist., 842 F.3d 430 (6th Cir. 2016) (interprets the conversion provision's knowledge element to require that defendant know property belongs to the government)
- Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) (certain information may constitute property subject to protection)
- Carpenter v. United States, 484 U.S. 19 (1987) (recognizes confidential business information as property)