Westbrook Navigator L.L.C. v. Navistar, Inc, 751 F.3d 354

Background

Westbrook and his company Navigator filed separate Chapter 7 petitions on the same day; Westbrook was the 94.85% owner of Navigator. Westbrook’s personal schedule referenced a “potential” qui tam/FCA claim; Navigator’s schedule did not.
Trustee John Dee Spicer filed no-asset reports in both cases, which led to discharge and closures; he later reopened the cases to administer the FCA claim as an asset after learning of the suit.
Navigator (as relator) filed a sealed qui tam FCA complaint in August 2010; the district court substituted Westbrook as relator in April 2011; the United States declined to intervene.
The trustee moved to substitute himself as relator; the district court vacated the prior substitution, found the claim belonged to the bankruptcy estate and that the trustee had exclusive standing, and substituted Spicer as relator.
Spicer (as trustee) filed an amended complaint alleging false-claim and false-statement FCA counts based on alleged failure to follow CARC priming and related inspection/certification duties under the MRAP contract and FAR clause 52.246-2; the district court dismissed the amended complaint for failure to plead an FCA false-statement (and prerequisite certification) with particularity and denied leave to amend.
The Fifth Circuit affirmed: (1) the trustee had exclusive standing because the FCA claims were estate property not disclosed in the Navigator bankruptcy, and (2) the amended complaint failed to plead an FCA claim because Spicer did not allege that certification of compliance was a prerequisite to payment.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the FCA claims belonged to Navigator’s bankruptcy estate and thus only the trustee had standing	Westbrook: his personal disclosure and §341 testimony about a "potential" claim disclosed the FCA claim as to Navigator given the closely related filings and his ownership	Defendants/Trustee: Navigator did not disclose the claim in its schedules or at its §341 meeting; trustee therefore is the real party in interest	Held: Trustee had exclusive standing; Westbrook’s vague personal disclosures did not constitute disclosure for Navigator and were insufficient in any event
Whether Spicer pleaded a false-statement or false-claim under the FCA as to Navistar Defense based on deliveries and FAR 52.246-2	Spicer: each MRAP delivery and related records/invoices amounted to an express false statement that the vehicles complied with contract/mil-spec requirements	Navistar: alleged noncompliance is at most a contract breach; plaintiff failed to allege that payment was conditioned on a certification of compliance	Held: Dismissal affirmed; plaintiff failed to allege that certification was a prerequisite to payment, so claims rested on breach of contract not the FCA
Whether the First Amended Complaint satisfied Rule 9(b) particularity requirements	Spicer: alleged who/what/when/where/how sufficiently, tying invoices and deliveries to noncompliance	Navistar: factual allegations do not show a requisite certification-to-payment nexus or that Navistar submitted invoices/statements to the government relying on false invoices	Held: 9(b) not satisfied as to false statements and prerequisite requirement absent an allegation that certification was required for payment
Whether the district court abused discretion by denying leave to file Second Amended Complaint	Spicer: proposed Second Amended Complaint cured specificity defects and added identities and details	Defendants: proposed amendment still fails the certification/prerequisite element and would be futile	Held: Denial affirmed; amendment would be futile because new allegations still do not show certification was a condition of payment

Key Cases Cited

Wieburg v. GTE Sw. Inc., 272 F.3d 302 (5th Cir. 2001) (trustee is real party in interest for estate claims)
In re Coastal Plains, Inc., 179 F.3d 197 (5th Cir. 1999) (debtors must disclose any potential claim with sufficient information)
Kane v. Nat’l Union Fire Ins. Co., 535 F.3d 380 (5th Cir. 2008) (continuing duty to disclose pending and potential claims)
United States ex rel. Longhi v. United States, 575 F.3d 458 (5th Cir. 2009) (elements of an FCA claim)
United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262 (5th Cir. 2010) (payment must be conditioned on certification for false-certification FCA liability)
United States ex rel. Marcy v. Rowan Cos., Inc., 520 F.3d 384 (5th Cir. 2008) (false certifications give rise to liability only when certification is prerequisite to obtaining payment)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 8)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations insufficient to plead plausibly)
In re Seven Seas Petroleum, Inc., 522 F.3d 575 (5th Cir. 2008) (bankruptcy estate includes legal claims)
In re MortgageAmerica Corp., 714 F.2d 1266 (5th Cir. 1983) (legal claims are estate property)