United States v. Hawley
5:06-cv-04087 | N.D. Iowa | Jun 27, 2008
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
WESTERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff, No. C 06-4087-MWB
vs. MEMORANDUM OPINION AND
ORDER ENTERING SUMMARY
RUSSELL T. HAWLEY and HAWLEY JUDGMENT SUA SPONTE ON
INSURANCE, INC., REMAINING CLAIMS AND
REAFFIRMING SUMMARY
Defendants. JUDGMENT ON COUNT ONE
____________________
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. LEGAL ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Authority To Enter Summary Judgment Sua Sponte . . . . . . . . . . . . . . 5
B. The Remaining FCA Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1. The Allison Engine decision . . . . . . . . . . . . . . . . . . . . . . . 7
2. The impact of Allison Engine in this case . . . . . . . . . . . . . 12
a. The § 3729(a)(2) claim . . . . . . . . . . . . . . . . . . . . . 12
b. The § 3729(a)(3) claim . . . . . . . . . . . . . . . . . . . . . 15
C. Reconsideration Of Summary Judgment On The First FCA Claim . . . 16
1. Authority to reconsider summary judgment . . . . . . . . . . . . 17
2. Grounds for reconsideration and analysis . . . . . . . . . . . . . 18
D. The Common-Law Fraud Claim . . . . . . . . . . . . . . . . . . . . . . . . . . 19
III. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
T
his civil action by the executive branch of the United States government
(hereinafter “the government”) pursuant to the False Claims Act and Iowa
common law comes before the court sua sponte for entry of summary judgment on the
government’s remaining claims. A few days before trial, the court determined from its
trial preparations that the government’s remaining claims were not submissible.
Therefore, the court canceled the trial and advised the parties that this more detailed ruling
granting summary judgment would follow. This ruling also addresses the government’s
request, in its trial brief, for reconsideration of the court’s previous grant of summary
judgment in the defendants’ favor on one of the government’s FCA claims.
I. INTRODUCTION
In this civil action by the government against defendants Russell T. Hawley and
Hawley Insurance, Inc., (collectively “Hawley”), the government alleges that Hawley
engaged in improper conduct that allowed ineligible farmers to obtain and make claims
against multi-peril crop insurance (MPCI) policies that were sold by Hawley, issued by
North Central Crop Insurance (NCCI), and reinsured by the Federal Crop Insurance
Corporation (FCIC), for certain crop land in South Dakota. The factual background to this
action is set forth in some detail in the court’s April 3, 2008, ruling on the parties’ cross-
motions for summary judgment. See United States v. Hawley, 544 F. Supp. 2d 787" date_filed="2008-04-03" court="N.D. Iowa" case_name="United States v. Hawley">544 F. Supp. 2d 787, 791-
94 (N.D. Iowa 2008) (Hawley I).
For present purposes, suffice it to say that the government alleges that Hawley knew
that Ed Marshall owned the crop land in question, that Mark Hoffman had rented the land
from Ed Marshall, and that Donald Kluver was actually farming the land in 2000.
2
Nevertheless, Hawley submitted to NCCI a crop insurance application for the 2000 crop
year in the names of Sydney and Stanley Winquist for an interest in crops on the crop land.
The Winquists later made claims against the MPCI policy on which the FCIC ultimately
reimbursed NCCI for crop insurance indemnities and paid premium subsidies for the 2000
crop year totaling $145,540. The Winquists and Kluver were later prosecuted for
conspiring to make fraudulent crop insurance claims relating to the crop land for crop year
2000. Kluver entered into a plea agreement and the Winquists entered into pretrial
diversion agreements.
Similarly, the government alleges that, just before the application deadline for the
2001 crop year, Hawley submitted to NCCI an application for crop insurance for the crop
land in the name of, and purportedly signed by, Ed Marshall. The application had been
hand-delivered to Hawley by Mark Hoffman, so Hawley had not seen Marshall sign the
application. The FCIC eventually made payments for indemnity payments for crop losses
claimed by Marshall and paid premium subsidies on the crop land for the 2001 crop year
totaling $159,960 . Ed Marshall signed a civil settlement agreement with the United States
Attorney’s Office for the Northern District of Iowa in which he admitted that he had not
signed a timely application for crop insurance nor had he instructed anyone to sign such
an application on his behalf and pursuant to which he repaid part of the overpayment
alleged.
The government originally brought claims pursuant to 31 U.S.C. § 3729(a)(1),
(a)(2), and (a)(3) of the False Claims Act (FCA), and common-law claims of fraud and
payment under mistake of fact. However, the court granted summary judgment in favor
of the defendants on Count One, the FCA claim pursuant to 31 U.S.C. § 3729(a)(1)
alleging “presentation of a false claim,” and as to Count Five, the common law claim for
“payment under mistake of fact,” but otherwise denied the defendants’ motion for
3
summary judgment. See id. Therefore, this matter was scheduled for trial to begin on
June 30, 2008, on the following claims: Count Two, the “false record or statement”
claim, in which the government asserts a claim pursuant to 31 U.S.C. § 3729(a)(2) of the
FCA alleging that the defendants knowingly made, used, or caused to be made or used
false records or statements in order to get false or fraudulent claims paid or approved by
the United States; Count Three, the “conspiracy” claim, in which the government asserts
a claim pursuant to 31 U.S.C. § 3729(a)(3) of the FCA alleging that the defendants
conspired with others to get false or fraudulent claims allowed or paid by the United States
in that the defendants entered into an agreement to submit and process false and fraudulent
information in order for ineligible individuals to receive indemnities that would ultimately
be reimbursed by the United States through the Federal Crop Insurance Corporation
(FCIC); and Count Four, the “common-law fraud” claim, in which the government
alleges that the defendants engaged in common-law fraud by making or using false records
and statements or by concealing the true facts surrounding the individuals actually owning
the farmland on which MPCI policies were issued and claims were made, knowing that the
misrepresentations or concealments were material and knowing and intending that the
United States would rely upon them, thereby causing the United States damages.
The court entered an extensive ruling on the parties’ motions in limine on June 23,
2008. See United States v. Hawley, No. C 06-4087-MWB (N.D. Iowa June 23, 2008)
(slip op.) (Hawley II) (docket no. 47). In a footnote in that decision, the court observed
that the Supreme Court had recently issued a decision in Allison Engine Co., Inc. v. United
States ex rel. Sanders, ___ U.S. ___, 2008 WL 2329722 (June 9, 2008) (Allison Engine),
on FCA claims under all three subsections of § 3729(a), but that this court did not find that
the Supreme Court’s decision changed the disposition of the parties’ cross-motions for
summary judgment on the FCA claims in this case, although it might change particulars
4
of the jury instructions on and the requirements for proof of the remaining FCA claims in
this case. Hawley II, slip op. at 4 n.1.
Notwithstanding that observation, in the course of preparation of jury instructions,
after further review of the Allison Engine decision; review of Iowa law applicable to
common-law fraud claims; review of the parties’ trial briefs addressing, inter alia, the
impact of the Allison Engine decision on this case; and review of the record, stipulations,
and arguments previously submitted in support of the parties’ cross-motions for summary
judgment, the court came to the conclusion that the government’s remaining claims in this
case are not submissible. Therefore, by order (docket no. 50) dated June 25, 2008, the
court canceled the trial set to begin on June 30, 2008, and advised the parties that this
more detailed ruling granting summary judgment on all of the government’s remaining
claims would follow at the earliest opportunity. This ruling will also address the
government’s request, in its Trial Brief (docket no. 44), that the court reconsider its
previous grant of summary judgment on the government’s FCA claim pursuant to
§ 3729(a)(1) in Count One.
II. LEGAL ANALYSIS
A. Authority To Enter Summary Judgment Sua Sponte
The court must first address its authority to enter summary judgment sua sponte.
As this court recently observed,
“Sua sponte orders of summary judgment will be upheld ‘only
when the “party against whom judgment will be entered was
given sufficient advance notice and an adequate opportunity to
demonstrate why summary judgment should not be granted.”’”
Figg v. Russell, 433 F.3d 593" date_filed="2006-01-05" court="8th Cir." case_name="Nicole Figg v. Duane Russell Mary Lou Jorgensen Robert Hofer Brent Walker Brenda Hyde J. Does, 1-10">433 F.3d 593, 597 (8th Cir. 2006) (quoting
Shur-Value Stamps, Inc. v. Phillips Petroleum Co., 50 F.3d
592, 595 (8th Cir. 1995), in turn quoting Interco Inc. v. Nat’l
5
Sur. Corp., 900 F.2d 1264" date_filed="1990-04-13" court="8th Cir." case_name="Interco Incorporated v. National Surety Corporation Federal Insurance Company">900 F.2d 1264, 1269 (8th Cir. 1990)); Stone
Motor Co. v. General Motors Corp., 400 F.3d 603" date_filed="2005-03-09" court="8th Cir." case_name="Stone Motor Company, Appellant/cross-Appellee v. General Motors Corporation, Appellee/cross-Appellant">400 F.3d 603, 607 (8th
Cir. 2005) (“A district court may grant summary judgment sua
sponte if ‘the losing party was on notice that she had to come
forward with all of her evidence.’”) (quoting Celotex Corp. v.
Catrett, 477 U.S. 317" date_filed="1986-06-25" court="SCOTUS" case_name="Celotex Corp. v. Catrett, Administratrix of the Estate of Catrett">477 U.S. 317, 326, 106 S. Ct. 2548, 91 L. Ed. 2d
265 (1986)); Hubbard v. Parker, 994 F.2d 529" date_filed="1993-07-15" court="8th Cir." case_name="Jon Hubbard v. John Parker">994 F.2d 529, 531 (8th Cir.
1993). Although the court may grant summary judgment sua
sponte, it is improper for a court to do so where the issue on
which summary judgment is granted was not properly raised
or discussed in the parties’ arguments concerning summary
judgment, unless the court’s ruling on issues properly raised
forecloses as a matter of law the claim on which the court
wishes to grant summary judgment sua sponte. See Heisler v.
Metropolitan Council, 339 F.3d 622" date_filed="2003-07-03" court="8th Cir." case_name="Kathy Heisler v. Metropolitan Council">339 F.3d 622, 631-32 (8th Cir. 2003).
Myers v. Tursso Co., Inc., 496 F. Supp. 2d 986" date_filed="2007-07-13" court="N.D. Iowa" case_name="Myers v. Tursso Co., Inc.">496 F. Supp. 2d 986, 992 (N.D. Iowa 2007).
In this case, the parties were aware of the impending decision of the Supreme Court
in Allison Engine at the time of their cross-motions for summary judgment, and after that
decision was handed down, they specifically addressed its impact in their trial briefs.
Therefore, the court concludes that the government has had sufficient advance notice of
the potential impact of the Allison Engine decision on the FCA claims in this case and has
had an adequate opportunity to demonstrate why summary judgment should not be granted
on the basis of that decision. Myers, 496 F. Supp. 2d 986" date_filed="2007-07-13" court="N.D. Iowa" case_name="Myers v. Tursso Co., Inc.">496 F. Supp. 2d at 992. Moreover, the court
concludes that the decision in Allison Engine, in conjunction with the court’s disposition
of issues and findings from the record on summary judgment foreclose, as a matter of law,
the government’s remaining claims. Id. Therefore, the court concludes that summary
judgment may be entered sua sponte in this case.
Moreover, the court concludes that it is appropriate to do so as to the remaining
claims in this case. The court will begin its explanation of that conclusion with the
6
remaining FCA claims pursuant to §§ 3729(a)(2) and (a)(3), then turn to the government’s
request that the court reconsider its grant of summary judgment to the defendants on the
government’s FCA claim pursuant to § 3729(a)(1) and, finally, the court will also explain
its reasons for granting summary judgment sua sponte on the government’s remaining
common-law fraud claim.
B. The Remaining FCA Claims
The viability of the government’s remaining FCA claims turns on the impact of the
Supreme Court’s June 9, 2008, decision in Allison Engine, ___ U.S. at ___, 2008 WL
2329722. Therefore, the court begins its analysis of the remaining FCA claims with a
review of the Allison Engine decision.
1. The Allison Engine decision
In Allison Engine, the Supreme Court “granted review . . . to decide what a plaintiff
asserting a claim under [§ 3729(a)(2) or (a)(3) of the FCA] must show regarding the
relationship between the making of a ‘false record or statement’ and the payment or
approval of ‘a false or fraudulent claim . . . by the Government.’” Allison Engine, ___
U.S. at ___, 2008 WL 2329722 at *3. The Court summarized its holding on this question
as follows:
Contrary to the decision of the Court of Appeals below,
we hold that it is insufficient for a plaintiff asserting a
§ 3729(a)(2) claim to show merely that “[t]he false statement’s
use . . . result[ed] in obtaining or getting payment or approval
of the claim,” 471 F.3d 610" date_filed="2006-12-19" court="6th Cir." case_name="United States Ex Rel. Sanders v. Allison Engine Co.">471 F.3d 610, 621 (C.A.6 2006) or that
“government money was used to pay the false or fraudulent
claim,” id., at 622. Instead, a plaintiff asserting a
§ 3729(a)(2) claim must prove that the defendant intended that
the false record or statement be material to the Government’s
decision to pay or approve the false claim. Similarly, a
7
plaintiff asserting a claim under § 3729(a)(3) must show that
the conspirators agreed to make use of the false record or
statement to achieve this end.
Allison Engine, ___ U.S. at ___, 2008 WL 2329722 at *2.
In reaching this decision, the Court first examined the plain language of
§ 3729(a)(2), which the Court noted “imposes civil liability on any person who ‘knowingly
makes, uses, or causes to be made or used, a false record or statement to get a false or
fraudulent claim paid or approved by the Government.” Id. at ___, 2008 WL 2329722 at
*5 (quoting § 3729(a)(2)). The Court found that the interpretation adopted by the Sixth
Circuit Court of Appeals below, and endorsed by the government, “impermissibly deviates
from the statute’s language”:
In the view of the Court of Appeals, it is sufficient for a
§ 3729(a)(2) plaintiff to show that a false statement resulted in
the use of Government funds to pay a false or fraudulent
claim. 471 F.3d 610" date_filed="2006-12-19" court="6th Cir." case_name="United States Ex Rel. Sanders v. Allison Engine Co.">471 F.3d, at 621-622. Under subsection (a)(2),
however, the defendant must make the false record or
statement “to get” a false or fraudulent claim “paid or
approved by the Government.” “To get” denotes purpose, and
thus a person must have the purpose of getting a false or
fraudulent claim “paid or approved by the Government” in
order to be liable under § 3729(a)(2). Additionally, getting a
false or fraudulent claim “paid . . . by the Government” is not
the same as getting a false or fraudulent claim paid using
“government funds.” Id., at 622. Under § 3729(a)(2), a
defendant must intend that the Government itself pay the
claim.
Eliminating this element of intent, as the Court of
Appeals did, would expand the FCA well beyond its intended
role of combating “fraud against the Government.” See
Rainwater v. United States, 356 U.S. 590" date_filed="1958-05-26" court="SCOTUS" case_name="Rainwater v. United States">356 U.S. 590, 592, 78 S. Ct. 946,
2 L. Ed. 2d 996" date_filed="1958-05-26" court="SCOTUS" case_name="Rainwater v. United States">2 L. Ed. 2d 996 (1958) (emphasis added). As the District of
Columbia Circuit pointed out, the reach of § 3729(a)(2) would
8
then be “almost boundless: for example, liability could attach
for any false claim made to any college or university, so long
as the institution has received some federal grants—as most of
them do.” [United States ex rel.] Totten [v. Bombardier
Corp., 380 F.3d 488" date_filed="2004-08-27" court="D.C. Cir." case_name="United States Ex Rel. Totten v. Bombardier Corp.">380 F.3d 488,] 496 [(D.C. Cir. 19 2004), cert. denied,
544 U.S. 1032" date_filed="2005-05-16" court="SCOTUS" case_name="Premiere Global Services, Inc., Fka Premiere Technologies, Inc. v. Apa Excelsior III L. P.">544 U.S. 1032 (2005)].
Allison Engine, ___ U.S. at ___, 2008 WL 2329722 at *5.
In so holding, the Court rejected the government’s contention that “paid by the
Government” does not mean that the government must literally pay the bill, finding such
a construction to be based on colloquial usage, not the precision that is important and
expected in a statute. Id. The Court also rejected the government’s contention that its
construction conflicted with the definition of “claim” in § 3729(c), because that definition
cannot alter the meaning of the phrase “by the Government” in § 3729(a)(2), explaining,
“Under § 3729(c)’s definition of ‘claim,’ a request or demand may constitute a ‘claim’
even if the request is not made directly to the Government, but under § 3729(a)(2) it is still
necessary for the defendant to intend that a claim be ‘paid . . . by the Government’ and not
by another entity.” Id. at ___, 2008 WL 2329722 at *6. In a footnote, the Court also
explained that the portion of § 3729(c) providing that a “claim” may be made to a
contractor, grantee, or other recipient of government funding was not rendered superfluous
by its interpretation of § 3729(a)(2):
This language [in § 3729(c)] makes it clear that there can be
liability under §§ 3729(a)(1) and (2) where the request or
demand for money or property that a defendant presents to a
federal officer for payment or approval, § 3729(a)(1), or that
a defendant intends “to get . . . paid or approved by the
Government”, § 3729(a)(2), may be a request or demand that
was originally “made to” a contractor, grantee, or other
recipient of federal funds and then forwarded to the
Government.
9
Allison Engine, ___ U.S. at ___, 2008 WL 2329722 at *6 n.1 (emphasis added). The
Court also rejected the contention that its interpretation of § 3729(a)(2) somehow required
proof that the defendant’s claim was submitted to the government, noting the difference
in language between § 3729(a)(1), which contains a “presentment” requirement, and
§ 3729(a)(2), which does not. Id.
The Court ultimately explained what must be proved to win a § 3729(a)(2) claim,
as follows:
What § 3729(a)(2) demands is not proof that the
defendant caused a false record or statement to be presented or
submitted to the Government but that the defendant made a
false record or statement for the purpose of getting “a false or
fraudulent claim paid or approved by the Government.”
Therefore, a subcontractor violates § 3729(a)(2) if the
subcontractor submits a false statement to the prime contractor
intending for the statement to be used by the prime contractor
to get the Government to pay its claim. If a subcontractor or
another defendant makes a false statement to a private entity
and does not intend the Government to rely on that false
statement as a condition of payment, the statement is not made
with the purpose of inducing payment of a false claim “by the
Government.” In such a situation, the direct link between the
false statement and the Government’s decision to pay or
approve a false claim is too attenuated to establish liability.
Recognizing a cause of action under the FCA for fraud
directed at private entities would threaten to transform the
FCA into an all-purpose antifraud statute. Our reading of
§ 3729(a)(2), based on the language of the statute, gives effect
to Congress’ efforts to protect the Government from loss due
to fraud but also ensures that “a defendant is not answerable
for anything beyond the natural, ordinary and reasonable
consequences of his conduct.” Anza v. Ideal Steel Supply
Corp., 547 U.S. 451" date_filed="2006-06-05" court="SCOTUS" case_name="Anza v. Ideal Steel Supply Corp.">547 U.S. 451, 470, 126 S. Ct. 1991, 164 L. Ed. 2d
720 (2006) (internal quotation marks omitted).
10
Allison Engine, ___ U.S. at ___, 2008 WL 2329722 at *6 (footnote omitted). The Court
then rejected the contention that its construction of § 3729(a)(2) conflicted with the
definition of “knowing” and “knowingly” in § 3729(b), which states, inter alia, that “no
proof of specific intent to defraud is required”:
The statutory definition of these terms is easily reconcilable
with our holding in this case for two reasons. First, the intent
requirement we discern in § 3729(a)(2) derives not from the
term “knowingly,” but rather from the infinitive phrase “to
get.” Second, § 3729(b) refers to specific intent with regard
to the truth or falsity of the “information,” while our holding
refers to a defendant’s purpose in making or using a false
record or statement.
Allison Engine, ___ U.S. at ___, 2008 WL 2329722 at *6 n.1.
The Court next applied similar reasoning to its construction of what must be proved
to establish a “conspiracy” claim pursuant to § 3729(a)(3):
Respondents also brought suit under § 3729(a)(3),
which makes liable any person who “conspires to defraud the
Government by getting a false or fraudulent claim allowed or
paid.” Our interpretation of this language is similar to our
interpretation of the language of § 3729(a)(2). Under
§ 3729(a)(3), it is not enough for a plaintiff to show that the
alleged conspirators agreed upon a fraud scheme that had the
effect of causing a private entity to make payments using
money obtained from the Government. Instead, it must be
shown that the conspirators intended “to defraud the
Government.” Where the conduct that the conspirators are
alleged to have agreed upon involved the making of a false
record or statement, it must be shown that the conspirators had
the purpose of “getting” the false record or statement to bring
about the Government’s payment of a false or fraudulent
claim. It is not necessary to show that the conspirators
intended the false record or statement to be presented directly
11
to the Government, but it must be established that they agreed
that the false record or statement would have a material effect
on the Government’s decision to pay the false or fraudulent
claim.
. . . . [T]he interpretation urged on us by respondents
would in effect substitute “paid or approved by the
Government” for the phrase “paid by Government funds.”
Had Congress intended subsection (a)(3) to apply to anyone
who conspired to defraud a recipient of Government funds, it
would have so provided.
Allison Engine, ___ U.S. at ___, 2008 WL 2329722 at *7.
2. The impact of Allison Engine in this case
In this case, as in Allison Engine, the government’s remaining FCA claims are a
“false record or statement” claim pursuant to § 3729(a)(2) and a “conspiracy” claim
pursuant to § 3729(a)(3). The court finds that Allison Engine forecloses both of the
government’s remaining FCA claims in this case.
a. The § 3729(a)(2) claim
The government’s “false record or statement” claim pursuant to § 3729(a)(2), in
Count Two in this case, alleges that the defendants knowingly made, used, or caused to
be made or used false records or statements in order to get false or fraudulent claims paid
or approved by the United States. The claim is premised on allegations that Hawley made
or used, or caused to be made or used, one or more false MPCI crop insurance
applications or false acreage reports in crop year 2000 for Stanley and Sydney Winquist
12
1
and in crop year 2001 for Edward Marshall. The court concludes that this claim is not
submissible in light of Allison Engine.
First, contrary to the government’s contentions in its Trial Brief (docket no. 44),
at 8, “intent” is a specific element of a § 3729(a)(2) claim. See Allison Engine, ___ U.S.
at ___, 2008 WL 2329722 at *5 (“Under § 3729(a)(2), a defendant must intend that the
Government itself pay the claim.”). More specifically, the government must prove that
“the defendant made a false record or statement for the purpose of getting ‘a false or
fraudulent claim paid or approved by the Government.’” Id. at *6.
Second, contrary to the government’s contentions, see Plaintiff’s Trial Brief at 9,
this is a case in which government funds were “merely used” to pay false claims in support
of which Hawley had allegedly made or used false records or statements, so that the
necessary intent cannot be shown. As the government concedes, the allegedly false
records and statements were never submitted to the government, but only to NCCI; the
crop insurance claims were only submitted to and paid by NCCI, not the government; and
the government only reimbursed NCCI pursuant to the Standard Reinsurance Agreement
for claims that NCCI had paid, the government did not pay any claims itself. See
Government’s Trial Brief (docket no. 44) at 2-3 (“I. Undisputed Facts”); Final Pretrial
1
The government’s proposed jury instructions indicate that the government is still
also relying on allegedly false statements in notices of loss and production worksheets.
See, e.g., Joint Proposed Jury Instructions (docket no. 43), Plaintiff’s Proposed Final Jury
Instruction No. 7. However, in its ruling on the parties’ cross-motions for summary
judgment, this court ruled that the insurance applications and acreage reports are the only
documents related to the crop insurance claims for which the government has generated
a genuine issue of material fact that Hawley signed, submitted, or participated in
submitting, and that these were the only documents on which there was a jury question as
to whether Hawley “made” or “used” them or “caused” them to be made or used.
Hawley I, 544 F. Supp. 2d 787" date_filed="2008-04-03" court="N.D. Iowa" case_name="United States v. Hawley">544 F. Supp. 2d at 809 (slip op. at 34-35).
13
Order (docket no. 48), 2-3 (“I. Stipulation Of Facts”). To put it another way, the
allegedly false crop insurance claims themselves were never forwarded to or approved by
the government, nor was the payment of the crop insurance claims conditioned on review
or approval by the government, and there is no showing that the defendant intended that
the false records or statements would be material to the government’s decision to pay or
approve the false claim. Thus, the evidence that the government ultimately reimbursed
NCCI for the false claims that NCCI paid is not sufficient to make out a submissible claim
pursuant to § 3729(a)(2). See Allison Engine, ___ U.S. at ___, 2008 WL 2329722 at *2
(“[A] plaintiff asserting a § 3729(a)(2) claim must prove that the defendant intended that
the false record or statement be material to the Government’s decision to pay or approve
the false claim.”); see also id. at *6 (“[U]nder § 3729(a)(2) it is still necessary for the
defendant to intend that a claim be ‘paid . . . by the Government’ and not by another
entity.”); id. (“If a subcontractor or another defendant makes a false statement to a private
entity and does not intend the Government to rely on that false statement as a condition of
payment, the statement is not made with the purpose of inducing payment of a false claim
‘by the Government.’”); id. at *6 n.1 (liability under§ 3729(a)(2) will lie where “a request
or demand . . . was originally ‘made to’ a contractor, grantee, or other recipient of federal
funds and then forwarded to the Government”) (emphasis added). On the government’s
evidence in this case, “the direct link between the false statement and the Government’s
decision to pay or approve a false claim is too attenuated to establish liability.” Id. at *6.
Therefore, the court now grants summary judgment in favor of Hawley on the
government’s “false record or statement” claim pursuant to § 3729(a)(2) in Count Two.
14
b. The § 3729(a)(3) claim
The government’s “conspiracy” claim pursuant to § 3729(a)(3), in Count Three in
this case, alleges that the defendants conspired with others to get false or fraudulent claims
allowed or paid by the United States in that the defendants entered into an agreement to
submit and process false and fraudulent information in order for ineligible individuals to
receive indemnities that would ultimately be reimbursed by the United States through the
Federal Crop Insurance Corporation (FCIC). Thus, this claim is premised on an
agreement to engage in the same conduct that the government alleges was actually
committed in Count Two. The court concludes that this claim also is not submissible in
light of Allison Engine.
The government’s evidence shows, at most, that the alleged conspirators agreed
upon a fraud scheme that had the effect of causing a private entity, NCCI, to make
payments using money obtained from the government or, even more indirectly, to make
payments for which NCCI was subsequently reimbursed by the government. Under
Allison Engine, that evidence is not enough. See Allison Engine, ___ U.S. at ___, 2008
WL 2329722 at *7 (“Under § 3729(a)(3), it is not enough for a plaintiff to show that the
alleged conspirators agreed upon a fraud scheme that had the effect of causing a private
entity to make payments using money obtained from the Government.”). Instead, the
government must show that the conspirators intended “to defraud the Government.” Id.
Where, as here, the conduct that the conspirators are alleged to have agreed upon involved
the making of a false record or statement, the government must show that the conspirators
had the purpose of “getting” the false record or statement to bring about the government’s
payment of a false or fraudulent claim. Id. Although it is not necessary for the
government to show that the conspirators intended that the false record or statement would
be presented directly to the government, it is still necessary for the government to establish
15
that the conspirators agreed that the false record or statement would have a material effect
on the government’s decision to pay the false or fraudulent claim. Id. Where, as here,
the private insurer, NCCI, made the decision to pay the false or fraudulent claim, the
allegedly false crop insurance claims themselves were never forwarded to or approved by
the government, nor was the payment of the crop insurance claims conditioned on review
or approval by the government, and there is no showing that the defendants intended that
the false records or statements would be material to the government’s decision to pay or
approve the false claim, the government’s “conspiracy” claim pursuant to § 3729(a)(3) is
insufficient as a matter of law.
Therefore, the court now grants summary judgment in favor of Hawley on the
government’s “conspiracy” claim pursuant to § 3729(a)(3) in Count Three.
C. Reconsideration Of Summary Judgment On The First FCA Claim
In its ruling on the parties’ cross-motions for summary judgment, this court, inter
alia, granted summary judgment in Hawley’s favor on the government’s FCA claim
pursuant to 31 U.S.C. § 3729(a)(1) in Count One, which alleged that the defendants
knowingly presented or caused to be presented to the United States false or fraudulent
claims for payment or approval. See Hawley I, 544 F. Supp. 2d 787" date_filed="2008-04-03" court="N.D. Iowa" case_name="United States v. Hawley">544 F. Supp. 2d at 801-06. This court
ruled that the government has alleged, and its evidence tends to prove, only that Hawley
“presented” or “caused to be presented” false claims to NCCI, which were paid by NCCI,
then NCCI was reimbursed by the FCIC, the government instrumentality, and that, under
Totten United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488" date_filed="2004-08-27" court="D.C. Cir." case_name="United States Ex Rel. Totten v. Bombardier Corp.">380 F.3d 488, 363 U.S.App.
D.C. 180 (D.C. Cir. 2004), and the decision of the Sixth Circuit Court of Appeals in
Allison Engine, United States ex rel. Sanders v. Allison Engine Co., Inc., 471 F.3d 610" date_filed="2006-12-19" court="6th Cir." case_name="United States Ex Rel. Sanders v. Allison Engine Co.">471 F.3d 610
(6th Cir. 2006), that is not enough to sustain a claim under § 3729(a)(1), as a matter of
16
law. Hawley I, 544 F. Supp. 2d 787" date_filed="2008-04-03" court="N.D. Iowa" case_name="United States v. Hawley">544 F. Supp. 2d at 806. In its Trial Brief at 12-14, the government asks
the court to reconsider its grant of summary judgment on this claim.
1. Authority to reconsider summary judgment
This court has previously found that Rule 54(b) of the Federal Rules of Civil
Procedure provides authority for a court to reconsider any interlocutory order, including
a prior ruling on a motion for summary judgment. Kirt v. Fashion Bug #3252, Inc., 495
F. Supp. 2d 957, 964 (N.D. Iowa 2007); Doctor John’s, Inc. v. City of Sioux City, Iowa,
467 F. Supp. 2d 925" date_filed="2006-12-20" court="N.D. Iowa" case_name="Doctor John's, Inc. v. City of Sioux City, Iowa">467 F. Supp. 2d 925, 931 (N.D. Iowa 2006); Wells’ Dairy, Inc. v. Travelers Indemnity
Company of Illinois, 336 F. Supp. 2d 906" date_filed="2004-09-23" court="N.D. Iowa" case_name="Wells' Dairy, Inc. v. Travelers Indemnity Co. of Illinois">336 F. Supp. 2d 906, 909 (N.D. Iowa 2004) (citing cases).
Specifically, Rule 54(b) provides that, unless the court certifies the order for interlocutory
appeal, “any order or other form of decision, however designated, which adjudicates fewer
than all the claims or the rights and liabilities of fewer than all the parties shall not
terminate the action as to any of the claims or parties, and the order or other form of
decision is subject to revision at any time before the entry of judgment adjudicating all the
claims and the rights and liabilities of all the parties.” FED. R. CIV. P. 54(b) (emphasis
added). Moreover, this court has repeatedly held that it has the inherent power to
reconsider and revise any interlocutory order, such as a summary judgment ruling, up until
the time that a final judgment is entered. Kirt, 495 F. Supp. 2d at 964; Wells’ Dairy, Inc.,
336 F. Supp. 2d 906" date_filed="2004-09-23" court="N.D. Iowa" case_name="Wells' Dairy, Inc. v. Travelers Indemnity Co. of Illinois">336 F. Supp. 2d at 909 (citing Kaydon Acquisition Corp. v. Custum Mfg., Inc., 317 F.
Supp. 2d 896, 903 (N.D. Iowa 2004); Helm Financial Corp. v. Iowa N. Ry. Co., 214 F.
Supp. 2d 934, 999 (N.D. Iowa 2002); and Longstreth v. Copple, 189 F.R.D. 401" date_filed="1999-10-22" court="N.D. Iowa" case_name="Longstreth v. Copple">189 F.R.D. 401, 403
(N.D. Iowa 1999)). Therefore, this court has authority to entertain the government’s
request for reconsideration of the court’s grant of summary judgment in Hawley’s favor
on the government’s FCA claim pursuant to § 3729(a)(1) in Count One.
17
2. Grounds for reconsideration and analysis
In support of its request for reconsideration of summary judgment on its FCA claim
pursuant to § 3729(a)(1), the government contends that, as a matter of law, the defendants’
submissions to NCCI were submissions to the government, because NCCI was an agent
of the government for purposes of the crop insurance program. The court is not persuaded
that its previous grant of summary judgment on this claim should be set aside.
As this court observed the first time around, in Totten, in a decision by then Judge
Roberts, now Chief Justice Roberts of the United States Supreme Court, the District of
Columbia Circuit Court of Appeals considered a case in which the allegedly false claims
were presented to Amtrak, not to the government. Totten, 380 F.3d 488" date_filed="2004-08-27" court="D.C. Cir." case_name="United States Ex Rel. Totten v. Bombardier Corp.">380 F.3d at 491. The court
held that, because Amtrak was not an agency or instrumentality of the government,
presenting a claim to Amtrak was not presenting a claim to an officer or employee of the
government within the meaning of § 3729(a)(1). Id. at 492. The court noted that the plain
meaning of § 3729(a)(1) requires that the claim be “presented” to an officer or employee
of the United States, not merely to a grantee of government funds and that this plain
meaning controls over a different legislative intent purportedly demonstrated by legislative
history. Id. 493-96. Thus, according to Totten, “presenting” a false claim to a grantee
of government funds is not “presenting” a false claim to an officer or employee of the
government.
The government’s renewed argument fails under the plain meaning of § 3729(a)(1),
as explained in Totten and now the Supreme Court’s decision in Allison Engine. The
statute requires that a false claim be presented to “an officer or employee of the United
States Government.” 31 U.S.C. § 3729(a)(1). It does not expressly include presentation
of a claim to a purported agent of a government corporation or a contractor, grantee, or
other recipient of federal funds, even if § 3729(c), defining a “claim,” does identify such
18
entities as ones to whom a “claim” can be made. See Totten, 380 F.3d 488" date_filed="2004-08-27" court="D.C. Cir." case_name="United States Ex Rel. Totten v. Bombardier Corp.">380 F.3d at 493-96 (the plain
meaning of § 3729(a)(1) requires that the claim be “presented” to an officer or employee
of the United States, not merely to a grantee of government funds); see also Allison
Engine, ___ U.S. at ___, 2008 WL 2329722 at *6 (“‘[W]hen Congress includes particular
language in one section of a statute but omits it in another section of the same Act, it is
generally presumed that Congress acts intentionally and purposely in the disparate
inclusion or exclusion.’”) (quoting Barnhart v. Sigmon Coal Co., 534 U.S. 438" date_filed="2002-02-19" court="SCOTUS" case_name="Barnhart v. Sigmon Coal Co.">534 U.S. 438, 452
(2002), with internal quotation marks omitted). Again, in this case, the government has
alleged, and its evidence tends to prove, only that Hawley “presented” or “caused to be
presented” false claims to NCCI, which were paid by NCCI, then NCCI was reimbursed
by the FCIC, the government instrumentality. Under Totten, that is not enough to sustain
a claim under § 3729(a)(1). Even assuming, as the government argues, that there was no
private alternative to MPCI policies, that does not mean, as the government argues, that
the only end result possible was presentment to and payments by the government. There
simply never was a presentment in this case “to an officer or employee of the United States
Government” within the meaning of § 3729(a)(1), even if the only end result possible was
that NCCI’s payment of the claim would ultimately be reimbursed from government funds.
Therefore, notwithstanding the government’s request for reconsideration, the court’s
grant of summary judgment in favor of Hawley on the government’s FCA claim pursuant
to § 3729(a)(1) in Count One shall stand.
D. The Common-Law Fraud Claim
The government’s last remaining claim is a common-law “fraud” claim in Count
Four alleging that the defendants made or used false records and statements or concealed
the true facts surrounding the individuals actually owning the farmland on which MPCI
19
policies were issued and claims were made, knowing that the misrepresentations or
concealments were material and knowing and intending that the United States would rely
upon them, thereby causing the United States damages. Although Allison Engine did not
address a common-law fraud claim, like the one still at issue in Count Four in this case,
the court nevertheless concludes that such a claim is not submissible as a matter of law in
this case, for essentially the same reasons that the FCA claims are not submissible. In so
concluding, the court expressly reconsiders the portion of its ruling on the parties’ cross-
motions for summary judgment addressing the common-law fraud claim and now reaches
2
a different conclusion.
As this court explained in its ruling on the cross-motions for summary judgment,
[T]he elements of a fraud claim for damages under Iowa law
[are the following]:
(1) a representation by the opposing party, (2) falsity of
the representation, (3) scienter (i.e., knowledge of
falsity), (4) intent to deceive, (5) materiality of the
misrepresentation, and (6) justifiable reliance by the
2
The court set forth its authority to reconsider a prior summary judgment ruling
above, in Section II.C.1., beginning on page 17. The court notes that, in its Trial Brief
(docket no. 40), 7-8, Hawley argues that the common-law fraud claim fails as a matter of
law on the ground that the government cannot show reliance, thereby implicitly requesting
reconsideration of the court’s disposition of this issue in its ruling on the cross-motions for
summary judgment. Moreover, to the extent that the court is granting summary judgment
on this claim sua sponte, rather than as a matter of reconsideration, the court concludes
that the government has had sufficient advance notice of Hawley’s attack on its showing
of reliance and has had an adequate opportunity to demonstrate why summary judgment
should not be granted on that basis from the cross-motions for summary judgment. Myers,
496 F. Supp. 2d 986" date_filed="2007-07-13" court="N.D. Iowa" case_name="Myers v. Tursso Co., Inc.">496 F. Supp. 2d at 992. Moreover, the court concludes that Iowa law forecloses the
government’s common-law fraud claim as a matter of law in light of the record on
summary judgment and the present stipulations of fact. Id. Therefore, the court concludes
that summary judgment may be entered sua sponte on this claim, as well.
20
claimant upon the representation, resulting in injury to
the claimant.
McLeodUSA Telecomm. Servs., Inc. v. Qwest Corp., 469 F.
Supp. 2d 677, 705 (N.D. Iowa 2007) (citing Smidt v. Porter,
695 N.W.2d 9" date_filed="2005-04-08" court="Iowa" case_name="Smidt v. Porter">695 N.W.2d 9, 22 (Iowa 2005)). This court has also
recognized that, in the case of an alleged fraudulent non-
disclosure or concealment, the first element is that the
defendant made a false representation or concealed a material
fact when under a legal duty to disclose that fact. Id. at 707.
Hawley I, 544 F. Supp. 2d 787" date_filed="2008-04-03" court="N.D. Iowa" case_name="United States v. Hawley">544 F. Supp. 2d at 812 (slip op. at 40). In its ruling on the cross-motions for
summary judgment, this court, inter alia, rejected Hawley’s contention that the
government could not prove “justifiable reliance,” where statements or records on which
the government’s fraud claim is based were only submitted to NCCI, not the government.
Id. at 814. The court now reconsiders that conclusion.
In the pertinent part of its ruling on the cross-motions for summary judgment, this
court noted that, in Clark v. McDaniel, 546 N.W.2d 590" date_filed="1996-04-17" court="Iowa" case_name="Clark v. McDaniel">546 N.W.2d 590 (Iowa 1996), the Iowa Supreme
Court had held that no direct contractual relationship is required between the alleged
tortfeasor and the person who purportedly relied to his or her detriment on the alleged
tortfeasor’s representations, because a person who fraudulently misrepresents the truth can
be held liable to third parties if the alleged tortfeasor had a “reason to expect” that its
misrepresentations would be communicated to third parties. Id. (citing Clark, 546 N.W.2d
at 593, in turn citing RESTATEMENT (SECOND) OF TORTS § 533 (1977)). This court then
reasoned as follows:
In the present case, there are at least genuine issues of
material fact that Hawley made misrepresentations, or failed
to disclose misrepresentations, in the various documents it
signed and submitted in support of crop insurance applications
or claims; that those misrepresentations, although not made
directly to the government, were made to NCCI; that Hawley
21
intended or had reason to expect that the misrepresentations
would be repeated or their substance communicated to the
government; and that those misrepresentations would influence
the government to reimburse NCCI for indemnity payments
and to pay crop insurance premium subsidies. RESTATEMENT
(SECOND) OF TORTS § 533; Clark, 546 N.W.2d 590" date_filed="1996-04-17" court="Iowa" case_name="Clark v. McDaniel">546 N.W.2d at 593. The
record shows that Hawley knew, from his prior employment
as an adjuster for NCCI and from his role as a crop insurance
agent, that the government subsidized crop insurance
indemnity payments and premiums based on information
provided to the private insurer. These are circumstances in
which there are at least genuine issues of material fact that the
maker of the misrepresentation or concealer of the falsity of
the misrepresentations, Hawley, had information that would
lead a reasonable man to conclude that there was an especial
likelihood that the false documents would reach the
government, even though the government was a third party to
the crop insurance contracts, and that the false documents
would influence the government to reimburse indemnity
payments and pay premium subsidies. See Clark, 546 N.W.2d
at 593 (quoting with favor this standard from RESTATEMENT
(SECOND) OF TORTS § 531 cmt. d). Therefore, Hawley is not
entitled to summary judgment on the government’s common
law fraud claim on the ground that the government cannot
show justifiable reliance upon misrepresentations purportedly
made only to NCCI.
Hawley I, 544 F. Supp. 2d 787" date_filed="2008-04-03" court="N.D. Iowa" case_name="United States v. Hawley">544 F. Supp. 2d at 815 (slip op. at 45-46).
The court now repudiates at least part of that analysis. Upon reconsideration of the
record, it is apparent that the government cannot show that Hawley intended or had reason
to expect that the alleged misrepresentations or non-disclosures would be repeated or their
substance communicated to the government, or that those misrepresentations or non-
disclosures would influence the government to reimburse NCCI for indemnity payments
and to pay crop insurance premium subsidies. Contra id. Once again, the record shows
22
that the private insurer, NCCI, made the decision to pay the false or fraudulent claim; the
allegedly false crop insurance claims themselves were never forwarded to or approved by
the government; the payment of the crop insurance claims was not conditioned on review
or approval by the government; and there is no showing that the defendants intended that
the false records or statements would be material to the government’s decision to pay or
approve the false claim. In short, the record shows beyond dispute that the alleged
misrepresentations and non-disclosures were never communicated to the third party now
asserting that it was defrauded by those misrepresentations or non-disclosures, so that party
could not have relied upon them, justifiably or otherwise. Compare Clark, 546 N.W.2d
at 593 (a person who fraudulently misrepresents the truth can be held liable to third parties
if they have a “reason to expect” that their misrepresentations will be communicated to
third parties) (citing RESTATEMENT (SECOND) OF TORTS § 533 (1977)).
Moreover, while the government probably could prove that Hawley intended to
deceive NCCI, it cannot show that Hawley intended to deceive the government. See
Hawley I, 544 F. Supp. 2d at 812 (fraud requires proof of intent to deceive the claimant,
as well as the claimant’s justifiable reliance). This is so, because, as the government
concedes, the allegedly false records and statements were never submitted to the
government, but only to NCCI; the crop insurance claims were only submitted to and paid
by NCCI, not the government; the government only reimbursed NCCI pursuant to the
Standard Reinsurance Agreement for claims that NCCI had paid, the government did not
pay any claims itself; the allegedly false crop insurance claims themselves were never
forwarded to or approved by the government; and the payment of the crop insurance
claims was not conditioned on review or approval by the government, such that there is
no showing that the allegedly false records and statements might have been material to the
government’s decision to pay or approve the false claim.
23
Therefore, the court now grants summary judgment in favor of Hawley on the
government’s common-law “fraud” claim in Count Four.
III. CONCLUSION
Upon review of the Supreme Court’s recent decision in Allison Engine; review of
the parties’ trial briefs addressing, inter alia, the impact of the Allison Engine decision on
this case; review of the Allison Engine decision; review of Iowa law applicable to common-
law fraud claims; and review of the record, stipulations, and arguments previously
submitted in support of the parties’ cross-motions for summary judgment, the court finds
that the government’s remaining claims pursuant §§ 3729(a)(2) and (a)(3) of the FCA and
Iowa common law, in Counts Two, Three, and Four, respectively, are not submissible
as a matter of law. Review of the same materials also leads the court to reject the
government’s request, in its Trial Brief, that the court reconsider its previous grant of
summary judgment in the defendants’ favor on the FCA claim pursuant to § 3729(a)(1) in
Count One.
THEREFORE, the court grants summary judgment sua sponte in favor of the
defendants on the government’s remaining claims in Counts Two, Three, and Four.
Notwithstanding the government’s request for reconsideration, the court also reaffirms its
grant of summary judgment in favor of the defendants on the government’s claim in Count
One.
24
There being no remaining claims, judgment shall now enter in favor of the
defendants on all claims.
IT IS SO ORDERED.
DATED this 27th day of June, 2008.
__________________________________
MARK W. BENNETT
U. S. DISTRICT COURT JUDGE
NORTHERN DISTRICT OF IOWA
25