UNITED STATES of America EX REL. Brandon BARRICK, Plaintiff/Relator-Appellant, v. PARKER-MIGLIORINI INTERNATIONAL, LLC; Parker International, Inc., also known as PMI Foods-USA; Cottonwood Trading, LLC; Fortuna Foods, LLC, John and Jane Does 1-10, Defendants-Appellees.
No. 16-4136
United States Court of Appeals, Tenth Circuit.
December 28, 2017
the cases that the district court cited involved a similar scenario, and it does not support the district court‘s analysis. See R.J. O‘Brien & Assoc., Inc. v. Pipkin, 64 F.3d 257, 263 (7th Cir. 1995) (holding that arbitrators did not exceed their powers in interpreting requirements of applicable National Futures Association Rules regarding arbitrator appointment). Thus, the district court identified no authority supporting his vacatur, which we now hold was еrroneous. The arbitrator did not exhibit a manifest disregard of the law.
CONCLUSION
For the foregoing reasons, we reverse the district court‘s vacatur. Because the district court resolved Sanchez‘s petition on only one of the several grounds for vacatur that Sanchez asserted, we also remand for further proceedings consistent with this decision. Before the district court may address Elizondo‘s countermotion to confirm the Award, it must determine whether any additional grounds exist to vacate, modify, or correct the Award.
Appellee shall bear the costs on appeal.
REVERSED AND REMANDED.
IKUTA, Circuit Judge, concurring:
Under
Ann Marie Taliaferro (James C. Bradshaw and Mark R. Moffat, Brown, Bradshaw & Moffat, L.L.P., and Robert B. Cummings, The Salt Lake Lawyers, Salt Lake City, Utah, with her on the briefs), Brown, Bradshaw & Moffat, L.L.P., Salt Lake City, Utah, for Appellant.
Mark R. Gaylord (Tesia N. Stanley and Tyler M. Hawkins with him on the brief), Ballard Spahr LLP, Salt Lake City, Utah, for Appellees.
Before TYMKOVICH, Chief Judge, EBEL, and LUCERO, Circuit Judges.
Brandon Barrick brought this action under the False Claims Act on behalf of the United States, alleging his former employer Parker-Migliorini International (PMI) illegally smuggled beef into Japan and China. At thе time of the scheme, China banned all imports of U.S. beef, and Japan
The False Claims Act prohibits false or fraudulent claims for payment to the United States.
In this case, Barrick alleges PMI cheated the government out of the inspection fees that would have been paid if PMI had complied with federal law. The United States Department of Agriculture (USDA) charges an hourly rate for the process of inspecting and certifying meat for export to a country only if the country has higher standards than the United States. In order to smuggle beef into Japan and China, PMI lied about the beef‘s destination. PMI gave sham destinations-Moldova or several Central American countries-which have import standards equal to or less than the United States. Based on these sham destinations, the USDA provided its usual (free) inspection rather than the appropriate heightened (reimbursable) inspection.
In Barrick‘s view, an “obligation” to pay the government arises when the USDA is informed that meat is being exported to a country with inspection standards higher than those in the United States. Thus, the government should have been paid for the inspections that would have occurred if PMI had accurately reported the destination countries.
We disagree. Barrick cannot allege there was an “established duty” to pay the government for inspections for the smuggled beef. First, the obligation would never have arisen for the beef smuggled to China, where it was altogether banned. The relevant regulations do not impose a charge for ascertaining whether a given destination country bans the import of U.S. meat, which is where the process would have ended. Second, the obligation for the beef smuggled to Japan did not rise to the level of an “established duty.” An established duty is one owed at the time the improper conduct occurred, not a duty dependent on a future discretionary act. Here, the obligation would not have arisen absent a third-party meat supplier‘s independent wrongful conduct. This is because the meat supplier supplies the destination country to the USDA, thus сontrolling the type of inspection performed. But PMI did not use meat suppliers who were eligible to export beef to Japan. So, for an obligation to arise, the supplier would have had to report an accurate-and illegal-destination country to the USDA, even though the supplier was not eligible to export to that country. This conduct does not create an established duty under the Act.
I. Background
We begin with an overview of USDA regulations governing the inspection and certification of meat destined for export. Then, we summarize Barrick‘s allegations, the applicable provision of the False Claims Act, and the grounds for the district court‘s denial of leave to amend.
A. The Export Certification Process
Federal law requires the USDA to inspect and certify meat destined for export. See
First, a supplier completes an export application and provides it to a FSIS employee. FSIS Directive 9000.1, Export Certification (U.S.D.A. 2006), at 1. This application indicates the destination country, the establishment from which the product is exported, and the name of the products being exported. FSIS Form 9060-6 (“Application for Export Certificate“).
Second, the FSIS employee verifies the information on the application and performs a physical inspection. This step includes verifying the product meets the requirements of the destination country. FSIS Directive 9000.1, at 1-2, 4-6. The FSIS employee does so by consulting the “Export Library,” a list of requirements officially communicated to FSIS by various countries. FSIS Directive 9000.1, at 3; USDA, Export Library (Sept. 1, 2017), https://www.fsis.usda.gov/wps/portal/fsis/topics/international-affairs/exporting-products/export-library-requirements-by-country. After verifying the information on the application, the FSIS employee signs the application and issues an export certificate. FSIS Form 9060-5 (“Export Certificate of Wholesomeness“).
Third, a FSIS certifying official compares the completed export certificate and the signed application. This step includes verifying again that the information is consistent with the destination country‘s requirements. If the certifying official deems the export certificate accurate, he signs it. The product is then eligible for export. FSIS Directive 9000.1, at 2, 7-8.
Domestic meat quality standards provide a baseline for exported American meat. For some countries, that is enough-meat that satisfies U.S. law is good enough for them. Other countries, however, impose additional requirements. When that is the case, “[o]nly facilities and products which meet those specific requirements are eligible to export products to that country.” FSIS, Export Certification, at 41-25 (Apr. 14, 2017), https://www.fsis.usda.gov/wps/wcm/connect/338f8b52-09e6-477f-bb5b-da6c4f3a996e/42_IM_Export_Certification.pdf?MOD=AJPERES.
Another division of the USDA, the Agricultural Marketing Service, administers Export Verification and Quality System Assessment (EV/QSA) Programs, which ensure these specific requirements are met. Id. The Marketing Service reviews and approves companies as eligible suppliers under thе EV/QSA programs, and maintains lists of approved suppliers. Id. Suppliers must also maintain lists of products intended for export, which are approved by the Marketing Service. Id. Again, only eligible products from eligible suppliers can be exported to countries that require an EV/QSA program.
Another difference is that the export certification process can entail charges if suppliers export to countries that require an EV/QSA program.
The USDA distinguishes between “basic export services” and “voluntary reimbursable services.” The distinction is that FSIS charges suppliers for voluntary reimbursable sеrvices, but not for basic export services. See FSIS Directive 9000.1 at 3 (“When export, certification services are performed in an official establishment[.], the issuance of export certificates that are required by
But-and this is the central issue in this case-verifying compliance with an EV/QSA program is a reimbursable expense. Id. at 34; see also
In this context, the trigger for the charge is when the FSIS employee looks at the Export Library-FSIS‘s list of requirements for various countries-and sees the country in question requires an EV/QSA program. The charge cannot be triggered before then, since the FSIS employee always consults the Export Library as a matter of routine. But the additional steps the employee must then carry out-for example, checking that the facility is an eligible supplier and that the product is eligible for export under the relevant EV/QSA program-would incur a fee, since they are nоt part of the normal export certification process.
B. PMI‘s Scheme
PMI‘s business includes exporting meat to local wholesale markets around the world. When PMI exports meat outside the United States, it places an order with an eligible supplier, informing the supplier of the destination country. See App. 245-46, 267. Based on that destination, the supplier applies for the proper export certificate and obtains the proper inspection from FSIS. Thus, by supplying the destination, PMI controls which inspection occurs.
The complaint alleges PMI smuggled beef into Japan and China to avoid complying with those countries’ import restrictions. After receiving an order from Japan or China, PMI would place an order with a meat supplier. At the time of the scheme, China banned all imports of U.S. beef, and Japan required an EV/QSA program because it banned beef from cattle slaughtered over 30 months in age. So, if the actual destination was Japan, PMI would
Meat destined for Japan would be shipped to Central America, repackaged and passed off as local beef, and shipped to Japan. PMI allegedly referred to this method of getting meat into Japan as the “Japan Triangle.” App. 241. Meat destined for China would be shipped to Hong Kong, never making it to Moldova, and smuggled from there into China. PMI allegedly referred to this method of getting meat into China as the “LSW Channel.” App. 242.
At the time, U.S. beef heading to Hong Kong had to comply with an EV/QSA program. FSIS would only give an Export Certificate for Hong Kong to eligible products produced by eligible suppliers-everything meeting the requirements of the EV/QSA program. So PMI did not want the product inspected as if it was going to Hong Kong-it could only have shipped eligible products from eligible suppliers and would have had to pay for any inspections. But Hong Kong would not have accepted the beef in question because it would not have been an eligible product. That is why PMI сlaimed the meat was destined for Moldova.
C. Procedural Background
Barrick worked for PMI as a financial analyst from 2007 to 2012. In 2012, Barrick filed his original False Claims Act complaint under seal, providing the government with a copy so the United States could determine whether to intervene. After reviewing the sealed complaint, the FBI initiated a criminal investigation into PMI. This investigation led PMI to plead guilty to violating
In 2015, the government declined to intervene in this action, so Bаrrick proceeded as a relator on the government‘s behalf. Barrick raised three claims under the False Claims Act: a reverse false claim, a conspiracy claim, and a retaliatory firing claim. After the district court dismissed Barrick‘s complaint for various pleading deficiencies, Barrick sought leave to amend his complaint. The district court allowed Barrick to proceed with his retaliatory firing claim, but denied leave to amend on the reverse false claim and the conspiracy claim, explaining amendment would be futile: Bаrrick failed to allege PMI had avoided an obligation to pay the government. In the district court‘s view, PMI‘s scheme was not about avoiding inspection fees; it was about getting banned meat into China and Japan. PMI never would have paid the inspection fees, since they never wanted the meat inspected-the whole point was that the meat would not have passed inspection under the applicable standards. And the beef headed to China could not have been inspected, since China banned all U.S. beef. So there would never havе been an obligation to pay inspection fees. The district court certified the denial of the motion to amend as a final order under Federal Rule of Civil Procedure 54(b), from which Barrick now appeals.
On appeal, we are only concerned with the substantive False Claims Act claims, not the retaliation claim, which remains before the district court.
II. Analysis
Barrick argues the district court erred by finding that amending the complaint would be futile because Barrick
A. The Reverse-False-Claims Provision
As explained above, the reverse-false-claims provision,
Since the last time our court addressed this provision, in U.S. ex rel. Bahrani v. Conagra, Inc., 624 F.3d 1275, 1279 (10th Cir. 2010) and U.S. ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189 (10th Cir. 2006), Congress has amended it.2 Before 2009, the reverse-false-claims provision imposed liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”
First, Congress added a second route to liability. The reverse-false-claims provision now imposes liability on any person who:
[1] knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or [2] knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.
Second, Congress added a definition for the term “obligation,” which the statute had not previously defined. As amended, “obligation” means “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.”
For our purposes, “established” is the key word in this definition. As the Fifth Circuit recently explained, “‘established’ refers to whether there is any duty
We have not previously addressed the definition of “obligation” added by the recent False Claims Act amendments, but in prior cases we explained that potential obligations were not actionable under the statute prior to amendmеnt. See Conagra, 465 F.3d at 1195-97, 1203. In Conagra, we explained that a plaintiff must allege the defendant “had an existing legal obligation to pay or transmit money or property to the government.” Id. at 1195 (quoting Kennard v. Comstock Res. Inc., 363 F.3d 1039, 1048 (10th Cir. 2004)). And “the obligation must arise from some independent legal duty.” Id. That meant that “potential obligations ... are not properly the subject of a suit under [the reverse-false-claims provision.]” Id. at 1196 (quoting U.S. ex rel Huangyan Imp. & Exp. Corp. v. Nature‘s Farm Prod., Inc., 370 F.Supp.2d 993, 1000 (N.D. Cal. 2005)). We also explained that where government officials were afforded discretion to determine whether to charge fees, the obligation was “contingent” and thus outside the scope of the provisiоn. Id. at 1203.
Nothing in the statute‘s new definition of “obligation” abrogates our previous approach.
B. Application to PMI‘s Scheme
PMI contends that the allegations do not support a cause of action under either clause of
China is the easier case. There were no eligible suppliers for China during this period, since China banned all U.S. beef. During the normal phase of the inspection process-for which no charge applies--the FSIS employee would discover from the Export Library that China prohibited imports of U.S. beef. The inspection would never have reached a stage where charges could be incurred.
The fact that the meat stopped in Hong Kong, a permissible export destination, before traveling to China does not affect our analysis. The Act does not require that suppliers pay for an inspection to comply with import standards in a country that is merely a stop en route to their destination country. Thus, the fact that a shipment оf meat might have stopped in Central America or New Zealand or Indonesia does not matter for analytical purposes.
Japan requires several more analytical steps, however, but no obligation to pay the government would have arisen in that context either. Barrick does not allege PMI used suppliers eligible to export to Japan. Quite the opposite: he alleges the point of the scheme was to smuggle banned beef (that is, ineligible products from ineligible suppliers) into Japan.
- PMI and the supplier would have had to agree to export to Japan even though the supplier is ineligible. In other words, without the supplier‘s collusion, no inspection fees would arise. If the supplier declined on the grounds that it was ineligible to ship to Japan, no inspection fees would arise.
- Despite the illegality of the arrangement, the suрplier would have to accurately list Japan as the destination on the export application. So, after deciding to break the law, the supplier would have to decide to tell that to FSIS in order for any inspection fees to arise. If the supplier listed a destination country with standards equal to or less than the U.S. standards, no fees would arise.
Only if these two things happened would any inspection fees arise. If they did happen, some amount of fees would have arisen: the FSIS employee would look at the export application, and access the Export Library to determine Japan‘s requirements. At this point, the FSIS employee would see that Japan requires an EV program, triggering inspection fees. But the inspection would be extremely short: the FSIS employee would look to see if the supplier is eligible, find it is not, and reject the application.
The key is that for an obligation to arise here, it requires not only the supplier‘s complicity in an illegal scheme, but the supplier‘s willingness to list the true destination-and be found out easily. This requires at least the two assumptions above-if PMI or the third-party supplier decided not to go through with any of those steps, no inspection fees would arise.
The obligation to pay is thus potential and contingent, as we explained in Conagra, because it depends on multiple assumptions, as well as a third party‘s wrongful acts. That is, even if PMI had told an ineligible supplier it wished to export beef to Japan, there would not have been an inspection unless the supplier cooperated in the smuggling. But, in order to create liability, the obligation must be formally established at the time of the improper cоnduct, not dependent on a future discretionary act-let alone two acts, let alone implausible ones, let alone by a third party.
Barrick contends our decision in Conagra, 465 F.3d 1189, supports his interpretation of the Act. In Conagra, the plaintiff alleged employees of Conagra, a meat and hide exporter, routinely altered USDA export certificates. If an export certificate contained a substantive deficiency-for example, “the destination of the product“-USDA regulations required FSIS to issue a new certificate, for which they would charge Conagra. Id. at 1193. Rather than obtain replacement certificates, Conagra employees would alter or forge export certificates to avoid fees the company would otherwise have to pay. Id. at 1194. We found the USDA‘s requirement that Conagra obtain replacement certificates in certain situations and pay an accompanying fee constituted an “obligation” under the statute. Id. When Conagra employees determined changes were necessary, it triggered an established duty to pay the USDA to issue new certificates. Absent Conagra altering the certificates, they would have had to pаy the USDA for new certificates. The wrongful act is at one remove from the obligation.
But Conagra is not on point. Absent PMI lying about the destination country, the obligation would not have arisen automatically. For China, the obligation would
In sum, the obligation in this case is not an “established duty” and the alleged fraudulent conduct does not create liability under the False Claims Act.
III. Conclusion
We therefore AFFIRM the district court‘s denial of Barrick‘s motion for leave to amend because Barrick‘s proposed amendment would be futile. The complaint, as amended, would be subject to dismissal under
Donald Joe GUTTERIDGE, Jr., as limited guardian of D.C., a minor child, Plaintiff-Appellant, v. State of OKLAHOMA; Oklahoma Department of Human Services; Bethanie Kuzma, an individual; Shannon McElroy, an individual; Scott Batiste, an individual; Misty Jennings-Nelson, an individual; Betty Johnson, an individual; Renee Fields, an individual; Regina Benson, an individual, Defendants-Appellees.
No. 16-6321
United States Court of Appeals, Tenth Circuit.
FILED January 3, 2018