UNITED STATES of America, ex rel. Edward L. TOTTEN, Appellant, v. BOMBARDIER CORPORATION AND ENVIROVAC, INC., Appellees.
No. 01-7071.
United States Court of Appeals, District of Columbia Circuit.
Argued March 4, 2002. Decided April 16, 2002.
286 F.3d 542
Thomas M. Bondy, Attorney, U.S. Department of Justice, argued the cause as amicus curiae supporting appellant. With him on the brief were Roscoe C. Howard Jr., United States Attorney, Douglas N. Letter, Litigation Counsel, United States Department of Justice, Colin C. Carriere, Counsel to the Inspector General, Office of the Inspector General, National Railroad Passenger Corporation, and D. Hamilton Peterson, Deputy Counsel to the Inspector General.
Mark R. Hellerer argued the cause and filed the brief for appellee Bombardier Corporation. Donald A. Carr entered an appearance.
Paul E. Lehner and Randall L. Mitchell were on the brief for appellee Envirovac, Inc. Barbara Van Gelder and Scott M. McCaleb entered appearances.
Before: EDWARDS and RANDOLPH, Circuit Judges, and WILLIAMS, Senior Circuit Judge.
Opinion for the court filed by Circuit Judge EDWARDS.
Concurring opinion filed by Circuit Judge RANDOLPH.
Suspecting that his employer, the National Railroad Passenger Corporation (“Amtrak“) was being defrauded by two companies with whom it had contracted to supply new rail cars with improved toilet systems, Edward Totten brought an action against these companies under the False Claims Act (“FCA“),
In 1997, Congress enacted legislation which stated, in part, that Amtrak “shall not be subject to title 31.” See Amtrak Reform and Accountability Act of 1997, Pub.L. No. 105-134, § 415(d), 111 Stat. 2570 (Dec. 2, 1997) (“the Reform Act“), codified at
Accordingly, we reverse the judgment of the District Court and remand the case for further proceedings. On remand, Totten may amend his complaint, which presently is inadequate, in order to state a proper claim for relief under the FCA. The District Court indicated that it would have permitted such an amendment had it not interpreted the Reform Act as posing an insurmountable obstacle to Totten‘s suit. We agree that an opportunity to amend is permissible and appropriate.
In amending his complaint, Totten must state with particularity the circumstances surrounding the defendants’ allegedly false claims, as required by Rule 9(b) of the Federal Rules of Civil Procedure. He must also aver that the defendants actually submitted false demands for payment, rather than merely non-conforming goods. That said, we express no view on the question left open by this court in United States ex rel. Yesudian v. Howard University, 153 F.3d 731, 737-39 (D.C.Cir.1998), concerning the relationship between subsections (a)(1) and (c) of
I. BACKGROUND
Congress created Amtrak in 1971 in order to stave off the threatened extinction of passenger rail service in the United States. See Rail Passenger Service Act of 1970, Public Law No. 91-518, 84 Stat. 1327 (Oct. 30, 1970); Nat‘l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 453-55, 105 S.Ct. 1441, 1445-57, 84 L.Ed.2d 432 (1985). Since its inception, the statutes governing Amtrak have indicated that the railroad is to be managed as a for-profit corporation, and not as a “department, agency, or instrumentality” of the federal government. See
Until 1997, Amtrak was formally classified as a “mixed-ownership Government corporation,”
It did so in two ways that are significant for the present appeal. First, the Reform Act amended the GCCA to remove Amtrak from the list of mixed-ownership corporations. See Pub.L. No. 105-134, § 415(d)(2). This change freed the railroad from the requirements that bind companies so designated, such as the submission of budget reports to Congress,
Certainly, neither the statutory text nor its history makes any mention of the False Claims Act. Yet, along with the rules regarding government corporations, that statute is housed in title 31. And the present case calls upon us to decide the extent to which this provision of the Reform Act narrowed the reach of the FCA as it relates to Amtrak. This is an issue of first impression.
The dispute giving rise to this case began when Amtrak contracted with two private companies, Bombardier Corporation and Envirovac, Inc. (“the Contractors“), to supply rail cars with new toilet systems for its trains. Bombardier makes the cars and Envirovac makes the toilets. Specifications for the toilet systems were incorporated into Amtrak‘s contracts with the Contractors. On March 16, 1998, Totten, a former Amtrak employee, filed a suit against the Contractors under the FCA, alleging that they had supplied unsuitable parts that did not meet the contractual specifications. Totten‘s complaint asserted that these noncompliant toilets were so defective that they endangered the health of Amtrak‘s passengers and employees. Totten further averred that the Contractors knew of these defects, yet delivered the cars anyway in order to obtain payment under their contracts.
In order to advance its purpose of protecting federal funds from fraud, the False Claims Act allows a private individual such as Totten (known as the relator) to bring a
The language of
any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.
Neither this court nor the Supreme Court has definitively explicated the complex relationship between the definition clause in
The District Court did not face this question. Rather, the court relied on different grounds in rejecting Totten‘s complaint. See United States ex rel. Totten v. Bombardier Corp., 139 F.Supp.2d 50, 52 & n. 1 (D.D.C.2001). First, the District Court held that, regardless of whether
The District Court noted that ordinarily it would have allowed a plaintiff to cure such pleading flaws by amendment, but concluded that such a remedy would have been futile in Totten‘s case because his suit was doomed as a matter of law. See Bombardier, 139 F.Supp.2d at 52 n. 1. Specifically, the court held that Amtrak‘s special
Totten appeals from this decision. The United States elected not to intervene in this litigation pursuant to
II. DISCUSSION
The central issue in this appeal is whether the Reform Act, in stating that Amtrak “shall not be subject to title 31,” exempts those who contract with Amtrak from liability under the False Claims Act. We believe that it does not. Rejecting the District Court‘s construction of the Reform Act leads us to the question of whether Totten should be allowed to amend his complaint to correct its various shortcomings. We believe that he should.
A. The Meaning of “Subject To” in 49 U.S.C.A. § 24301(a)(3)
The argument that the Reform Act bars Totten‘s suit, which the District Court accepted and which the Contractors echo on appeal, runs as follows: The FCA confers benefits and imposes burdens on entities who receive government funding. The statute‘s stringent penalties deter fraud but they also may make some businesses reluctant to contract for fear of liability. Accordingly, if demands for payment presented to Amtrak can be considered “claims” within the meaning of
We are not persuaded by this argument. We must begin, of course, with the text of the statute. As the District Court itself recognized, the words “subject to” leave room for interpretation. See Bombardier, 139 F.Supp.2d at 53. It is true that in some contexts “subject to” can mean “affected by,” for example, “Boats in San Francisco Bay are often subject to fierce winds.” However, when the phrase is used in situations more analogous to the one here, it is typically given a narrower cast: an entity is “subject to” a particular legal regime when it is regulated by, or made answerable under, that regime. See THE RANDOM HOUSE THESAURUS 696 (giving “bound by” as chief synonym for the phrase in the sentence, “We are subject to the laws of the country“); see also, e.g., Texaco, Inc. v. Duhé, 274 F.3d 911, 918-19 (5th Cir.2001) (natural gas became “subject to an existing contract” within the meaning of the Natural Gas Policy Act when it was “governed by” the terms of that contract).
In National Collegiate Athletic Association v. Smith, for example, the Supreme Court considered whether “a private organization that does not receive federal financial assistance is subject to Title IX because it receives payment from entities that do.” 525 U.S. 459, 465, 119 S.Ct. 924, 928, 142 L.Ed.2d 929 (1999) (emphasis add-
Other examples reinforce this common understanding of the term. Thus, when the Supreme Court noted that a defendant was “subject to Title VII ... only if, at the time of the alleged retaliation, it met the statutory definition of employer,” it clearly meant that the defendant could be held liable under Title VII only if that condition was met. Walters v. Metro. Educ. Enters., Inc., 519 U.S. 202, 205, 117 S.Ct. 660, 663, 136 L.Ed.2d 644 (1997); see also, e.g., Nat‘l Cable and Telecomm. Ass‘n, Inc. v. Gulf Power Co., 534 U.S. 327, 122 S.Ct. 782, 797, 151 L.Ed.2d 794 (2002) (“[T]he Commission has not determined whether Internet access via cable system facilities should be classified as a ‘cable service’ subject to Title VI of the Act, or as a ‘telecommunications’ or ‘information service’ subject to Title II.“).
Moreover, this is how the phrase is used in the context of the False Claims Act itself. In its recent Vermont Agency decision, the Supreme Court used the phrase “subject to the false claims law” to describe the category of persons who can be sued under the FCA. 529 U.S. at 784 n. 13, 120 S.Ct. at 1869 n. 13; see also, e.g., United States ex rel. Long v. SCS Bus. & Tech. Instit., Inc., 173 F.3d 870, 876 (D.C.Cir.1999) (speaking of “individuals subject to the Act” as those who could be made liable under it); United States ex rel. Zissler v. Regents of the Univ. of Minnesota, 154 F.3d 870, 872 (8th Cir.1998) (asking whether States are “subject to the False Claims Act” in the sense of whether they can be held legally accountable for making false claims to the federal government).
Accordingly, where, as here, a plaintiff brings a qui tam action against a third party who has allegedly defrauded a federal grantee, common usage would suggest that the third party, and not the grantee, is being made “subject to” the FCA. We think this to be the more intuitive understanding of the Reform Act as well. Construing
Here, Totten seeks to use the FCA not to regulate Amtrak, but instead to recover for the purported fraud of contractors hired to serve the railroad. Allowing the United States (or its relator) to obtain damages from those who contract with Amtrak imposes no direct legal obligation on the railroad. Nor does it permit Amtrak‘s conduct to be measured against the standards set in the statute. Even if simi-
At any rate, this result flows from what we believe to be the most natural and ordinary reading of the phrase “subject to.” Accordingly, we will accept that conclusion, and allow Totten‘s suit to go forward, unless we find evidence that Congress had a different meaning in mind when it drafted
If anything, the only specific reference that Congress made to the “not be subject to title 31” language suggests that this clause was intended to have a rather limited effect. The amendment appeared in Section 501 of the House version of the bill that became the Reform Act. That section, entitled “Financial Powers,” was concerned mostly with restructuring Amtrak‘s stock. Subsection (e) contained both the clause removing Amtrak from the list of mixed-ownership Government corporations in
Insofar as this statement is useful, it clearly does not help the Contractors’ cause. It provides no indication that Congress expected or intended that the phrase “subject to” would take on a broader agenda than its ordinary meaning connotes. To be sure, the language of the amended
Such an outcome would indeed have been striking. To accept it, we would have to believe that just as Congress was committing itself to a significant investment of federal money in Amtrak, it eliminated a weapon for protecting that money against fraud. We would have to believe that Congress placed a significant obstacle in the way of uprooting the unlawful depletion of that portion of the public fisc used to develop and support the nation‘s passenger rail system — the very system that the legislation in question was aimed at protecting.
As suggested above, the words that Congress wrote do not compel (and in their ordinary usage resist) this conclusion. And the scant extrinsic evidence that exists to cast light on the meaning of these words suggests that such a dramatic result was far from the legislative mind. We think it not unreasonable to suppose that had such a broad rollback of the FCA in fact been the goal of the Reform Act, some indication of that intent would appear in the congressional record. Cf. Am. Hosp. Ass‘n v. NLRB, 499 U.S. 606, 613-14, 111 S.Ct. 1539, 1543-44, 113 L.Ed.2d 675 (1991). There is none. And, without some affirmative indicator, we are unwilling to place upon the text of that statute an expansive gloss that would generate this surprising result.
Recognizing the weakness of arguments from specific legislative history, the District Court, and now the Contractors, have focused on the broader purposes of the Reform Act as a possible interpretive guide. This effort falls flat as well. As described above, the District Court concluded that the aim of the Reform Act was to “negate the normal repercussions of government funding.” Totten, 139 F.Supp.2d at 54. That is, while Congress would continue (at least in the short-run) to appropriate significant federal money for Amtrak, its objective was to have the railroad treated as if it was receiving no such funding. The statute, in other words, legislated the pretense that Amtrak was self-sufficient. And, as such, FCA liability would be inappropriate, as that statute applies only where federal funds are at stake.
The problem with this view is that there is no actual basis for it in the legislative history. It is true that, in passing the Reform Act, Congress sought to end federal “micromanagement of Amtrak‘s operations,” H.R.REP. NO. 105-251, at 13, in order to allow the railroad to “operate as much like a private business as possible,” S.REP. NO. 105-85, at 1, U.S.Code Cong. & Admin.News 1997, at 3055. However, even if we accept these statements as relevant to determining the meaning of “subject to,” they do not necessarily support the Contractors’ position. In fact, they are entirely consistent with the position taken by Totten and the United States: that both the goal and effect of the Reform Act were to ensure that Amtrak would be treated just like any other private company that receives federal money. The Act, in other words, sought to ensure that Amtrak would no longer be subject to special restrictions that were not similarly imposed on private-sector transportation firms.
On this view, allowing Amtrak‘s contractors to be sued under the FCA makes perfect sense, as the contractors of any private business would likewise be subject to liability if they submitted false claims in connection with a project to be reimbursed with federal money. See, e.g., United States v. Lagerbusch, 361 F.2d 449 (3d Cir.1966); Murray & Sorenson v. United States, 207 F.2d 119, 123 (1st Cir.1953) (“The fact that the claims in this case were not presented directly to the government, but were made to it indirectly through the contractors, does not prevent recovery under the False Claims Statute.“); cf. United States v. Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976) (FCA used to sue a subcontractor whose fraud caused a private company that had contracted with the government to submit false invoices to the United States). Thus, contrary to the Contractors’ contention, even the general goals expressed by the drafters of the Reform Act appear to support Totten‘s attempt to bring suit under the FCA.
In sum, the most natural reading of
1. Flaws In Totten‘s Unamended Complaint
This legal conclusion does not, however, mean that Totten‘s complaint, at least in its current form, actually states a valid claim under the False Claims Act. Indeed, as suggested above, there are several ways in which his present complaint is deficient. First, Totten has alleged merely that the Contractors “knowingly presented or caused to be presented equipment to an officer or employees of the National Railroad Passenger Corporation, that was knowingly substandard or noncompliant with engineering specifications for the Superliner II Contract to obtain payments from the National Railroad Passenger Corporation ...” Complaint, at ¶ 22; see also id. at ¶¶ 27, 57. However, the bare assertion that defendants delivered goods that did not conform to contractual specifications is not enough to state a violation of the FCA. Instead, in the sections relevant here, the statute proscribes only false “claims” — that is, actual demands for money or property, see
The second problem with the present complaint is that Totten has provided no basis for concluding that, even if the defendants did present claims to Amtrak, those would be “claims” within the meaning of
a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.
Thus, in order to satisfy Rule 12(b)(6), Totten would at least have to plead that the federal government provided some portion of the money requested by the Contractors, or that the government reimbursed Amtrak for what it paid out to improve the toilet systems on its trains. Though he has not yet done so, it appears that Totten is aware of this requirement, and that he informed the District Court that he was prepared to amend his complaint to allege that federal money was implicated in the specific projects at issue. See Br. for the United States of America as Amicus Curiae Supporting Appellant 14.
A third difficulty with the complaint as it stands is that it does not appear to satisfy Rule 9(b) of the Federal Rules of Civil Procedure. This rule requires that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Totten does not argue that his complaint satisfies this standard, but instead that the rule does not apply to him because he has not alleged that defendants made “fraudulent” claims, but merely “false” ones. He suggests that because false claims are actionable under the FCA even without “proof of specific intent to defraud,”
Every circuit to consider the issue has held that, because the False Claims Act is self-evidently an anti-fraud statute, com-
The difference between the two categories of claims is simply the degree of scienter involved. See United States v. TDC Mgmt. Corp., 24 F.3d 292, 297 (D.C.Cir.1994) (distinction turns on “whether the defendant acted with an intent to deceive“). But this difference is entirely insignificant in the context of Rule 9(b)‘s pleading requirements. Indeed, the rule specifically allows allegations of “intent, knowledge, and other condition of mind” to be averred generally. See Gold, 68 F.3d at 1477. In contrast, the “circumstances” that must be pleaded with specificity are matters such as the “time, place, and contents of the false representations,” such representations being the element of fraud about which the rule is chiefly concerned. See 5 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1297 (2d ed.1990) (emphasis added). Therefore, in order to satisfy Rule 9(b), Totten must set forth an adequate factual basis for his allegations that the Contractors submitted false claims (or false statements in order to get false claims paid), including a more detailed description of the specific falsehoods that are the basis for his suit. See Bly-Magee, 236 F.3d at 1018-19; Columbia/HCA, 125 F.3d at 903.
2. Waiver of the Right to Amend
The Contractors argue that the flaws in the complaint are fatal, because Totten waived his right to amend his complaint by not seeking leave to do so pursuant to Rule 15(a). Instead, they point out, Totten merely indicated in his Opposition to defendants’ motion to dismiss that he stood ready to amend his complaint if the District Court identified any pleading deficiencies. As authority for their position, the Contractors cite Government of Guam v. American President Lines, 28 F.3d 142, 149-51 (D.C.Cir.1994), in which we held that plaintiffs whose complaint had been dismissed (for lack of subject matter jurisdiction) had waived their right to amend by failing to make a Rule 15(a) motion, either before or after the District Court granted their opponent‘s dismissal motion.
The present case, however, is quite different. In President Lines, we denied plaintiffs an opportunity to amend only after upholding the trial court‘s decision to dismiss the complaint. In other words, that litigation was over unless we allowed the plaintiffs to reopen it, and we found that their interest in doing so did not outweigh the “general rules favoring the finality of judgments and the expeditious resolution of litigation.” Id. at 151. Totten‘s situation presents no such countervailing finality concerns, in light of our conclusion that the District Court was wrong to dismiss the complaint on the only ground it actually gave for doing so. The waiver rule relied upon in President Lines is therefore not similarly applicable where the court of appeals reverses the trial court‘s dismissal order. See The Dartmouth Review v. Dartmouth College, 889 F.2d 13, 23 (1st Cir.1989) (stating the general rule that where “the pleader has stood upon his pleading and appealed from a judgment of dismissal, amendment will not ordinarily be permitted if the order of dismissal is affirmed“) (emphasis added) (quoting Rivera-Gomez v. de Castro, 843 F.2d 631, 635-36 (1st Cir.1988) (allowing amendment, even after affirming dismissal, where it is “in the interest of justice“)).
As for Totten‘s failure to seek leave to amend his complaint after the Contractors’ Motion to Dismiss was granted, a factor on which President Lines relied in finding a waiver, see 28 F.3d at 151, the District Court made clear in the present case that such a request would have been futile. See Bombardier, 139 F.Supp.2d at 52 n. 1 (“In other circumstances Totten would be permitted an opportunity to amend his complaint, but, as the remainder of this Opinion demonstrates, such an opportunity is not warranted in this case.“). Given that the District Court expressly indicated that it would have allowed Totten to amend had it not viewed the Reform Act as posing an insurmountable obstacle to his suit — regardless of how that suit was packaged — we see no reason, having reversed the court‘s legal mistake, to forbid what would have been permitted in the absence of that error. Therefore, we will remand the case with instructions that Totten be granted leave to amend his complaint.
In so doing, however, we express no opinion on the question left open by this court‘s decision in Yesudian: whether an FCA plaintiff may prevail against a defendant who submits a false “claim” to a federal grantee (such as Amtrak), without presenting evidence that the claim was ever actually submitted to the U.S. government. See Yesudian, 153 F.3d at 737-39. Depending on how Totten crafts his amended complaint, this issue of statutory interpretation may be avoided altogether. We therefore leave it for another day.
III. CONCLUSION
For the reasons given above, the judgment of the District Court is reversed and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
RANDOLPH, Circuit Judge, concurring:
I agree with all the court has written in its thorough opinion, but I believe a bit more is needed to highlight the problem we leave to the district court — namely, “whether [a False Claims Act] plaintiff can prevail by proving only that a false claim was submitted to a federal grantee (such as Amtrak), as defined in
Those liable under the False Claims Act include any person who “knowingly presents, or causes to be presented” — and here is the key language — “to an officer or employee of the United States government” a false claim.
Two points, neither of which Yesudian highlighted, seem to me of critical importance in construing
This is the consequence of the construction suggested in Yesudian and, at the moment, it seems to me at odds with the structure of the Act. On the other hand, requiring that the United States have suffered losses by paying false claims presented to it by the federal grantee avoids this interpretative difficulty, remains faithful to the language of