Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-01955/USCOURTS-caed-2_04-cv-01955-8/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 31:3729 False Claims Act

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA and No. 2:04-cv-1955-MCE-PAN (JFM)

the STATE OF CALIFORNIA 

ex rel. MIKE STIERLI,

Relator Plaintiff,

v. MEMORANDUM AND ORDER

SHASTA SERVICES INC. dba

TIMBERWORKS; and DOES 1 

through 50, inclusive,

Qui Tam Defendants.

----oo0oo----

In filing the present lawsuit, Qui Tam Plaintiff Mike

Stierli (“Stierli”) has attempted to invoke false claims

provisions contained within both state and federal law.

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2

Stierli’s company, MDS Construction, Inc. (“MDS”), was an

unsuccessful bidder for a California Department of Transportation

(“CalTrans”) project, and Stierli has now sued the lowest bidder

on the project in question, Shasta Services. Inc. dba Timberworks

(“Timberworks”) on grounds that Timberworks’ bid was fraudulent

and hence violated both the federal False Claims Act, 31 U.S.C. §

3729, et seq., and its California counterpart, California

Government Code § 12650, et seq. The United States of America

(“United States”) and the State of California (“State”) now move

to dismiss Stierli’s Complaint on grounds that no False Claims

Act violation has occurred. In addition to those motions to

dismiss, both Stierli and Timberworks have also filed Cross

Motions for Summary Judgment requesting that this matter be

adjudicated in their respective favors. As set forth below, the

Court determines that dismissal is warranted as to Stierli’s

state and federal claims. 

BACKGROUND

On June 18, 2002, Timberworks submitted a bid to CalTrans

for construction of a truck inspection facility in Siskiyou

County, California. The terms of the project proposal required

bidders to either subcontract five percent of contract work to

disadvantaged business entity (“DBE”) companies, or to

demonstrate good faith, but unsuccessful, attempts to do so. 

Timberworks’ bid, which was found to be lowest, contained the

requisite good faith certification indicating that no DBEs had

responsed to Timberwork’s solicitation for work on the contract.

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3

On or about June 21, 2002, two days after bids were opened,

MDS submitted a bid protest letter to CalTrans claiming that

Timberworks had not incorporated a bid from a certified DBE,

EnTerra Remediation, Inc. (“EnTerra”). In the meantime, CalTrans

proceeded to evaluate Timberwork’s good faith DBE efforts and

concluded those efforts were sufficient on June 26, 2002.

After MDS submitted a second protest letter on July 13, 2002

and included a copy of EnTerra’s letter of interest, on July 25,

2002, CalTrans reiterated its previous decision that Timberwork’s

efforts to obtain a qualified DBE were sufficient. On July 26,

2002 MDS appealed yet again to CalTrans’ Civil Rights Program,

and an additional investigation ensued. CalTrans contacted

EnTerra and determined that its faxed quote had been sent to

Timberworks at 8:36 a.m. on June 18, 2002, just over five hours

before final bid packages had to be submitted. CalTrans further

spoke to involved Timberworks personnel who explained that given

the distance between Timberworks’ office in Mt. Shasta,

California, and CalTrans’ Sacramento headquarters, the bid

package had been delivered by Federal Express to a bid courier on

June 14, 2004, four days before bids were due, in order to ensure

timely submission. Timberworks explained that it had not

received any affirmative responses from DBEs as of June 14, 2002. 

Timberworks was determined by CalTrans to have been “responsive

and forthright” in providing this information, and CalTrans found

yet again that Timberworks had demonstrated good faith efforts

towards DBE compliance despite EnTerra’s last-minute bid

submission. (Decl. Of Olivia Fonseca, ¶¶ 6-7).

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4

CalTrans then approved the award of the contract in question to

Timberworks on August 9, 2002, after it had full knowledge of

Timberwork’s alleged noncompliance.

Although MDS filed a complaint with the United States

Department of Transportation (“USDOT”) Federal Highway

Administrative Office of Civil Rights on September 13, 2002

(given the fact that federal monies were earmarked for the

project), Timberworks was not notified of the pendency of that

complaint and commenced its work. (Decl. of Harold J. Knight, ¶

11). CalTrans paid each claim presented for payment, however,

“fully aware of the pending federal complaint.” (Fonsceca Decl.,

¶ 9). Furthermore, CalTrans accepted the completed project on

December 31, 2003. Finally, by the time the USDOT issued its

determination on April 16, 2004 that the project was not in fact

eligible for federal funding because of insufficient DBE 

participation, all pay applications for the project had already

been submitted by Timberworks. (Knight Decl., ¶ 13).

Although the USDOT ultimately concluded that the project was

noncompliant, by admission from the author of its report, USDOT’s

investigation “was limited to evaluating procedures used by

CalTrans.” (Decl. of Lance Yokota, ¶ 7). Timberworks’ own role

with respect to any false claim was not investigated, and as

stated above, Timberworks was not even informed of the

investigation until after it was completed. Nowhere does the

USDOT report find that Timberworks defrauded the federal

government or submitted false claims to CalTrans.

The current lawsuit was filed against Timberworks on

September 20, 2004. 

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5

Stierli instituted the action as a qui tam plaintiff in order to

recover, on behalf of both the State and the federal government,

monies that were allegedly fraudulently obtained by Timberworks. 

The United States and the State of California initially declined

to intervene for purposes of affirmatively protecting their

interests, leaving Stierli to prosecute the matter in their

stead. Now, however, through the Motions to Dismiss presently

before the Court, both governmental entities now seek to dismiss

Stierli’s Complaint as unwarranted.

STANDARD

Dismissal of a qui tam plaintiff’s complaint requires a twostep analysis. The governmental real party in interest must

identify both a valid government purpose in moving for dismissal

and a rational relation between dismissal and accomplishment of

that purpose. U.S. ex rel. Sequoia Orange Co. v. Baird-Neece

Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998); Laraway v.

Sutro & Co., Inc., 96 Cal. App. 4th 266, 275 (Cal. App. 2002). 

Good cause for such dismissal depends on the particular

circumstances of each case, and relevant matters may include the

relative merits of the action, the interest of the qui tam

plaintiff, the purposes underlying the False Claims Act, and the

potential waste of government resources. Laraway, 96 Cal. App.

4th at 276; see also Am. Contract Servs. v. Allied Mold & Die,

Inc., 94 Cal. App. 4th 854, 862 (Cal. App. 2001).

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6

If the government makes a showing that dismissal is

warranted, the burden then switches to the qui tam plaintiff to

demonstrate that dismissal is in fact fraudulent, arbitrary and

capricious, or illegal. Sequoia Orange, 151 F.3d at 1145.

ANALYSIS

The federal False Claims Act, 31 U.S.C. § 3729, et seq.,

permits a private party to bring a false claims action, on behalf

of the government, in order to prevent fraud against the public

treasury resulting in financial loss. U.S. v. Neifert-White Co.,

390 U.S. 228, 232 (1968). A so-called qui tam action may be

instituted against anyone who (1) knowingly presents, or causes

to be presented, to the government a false or fraudulent claim

for payment or approval; 2) 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; or 3)

conspires to defraud the government by getting a false or

fraudulent claim allowed or paid. 31 U.S.C. §§ 3729(a), 3730(b).

The California False Claims Act was patterned after, and

closely resembles, its federal counterpart. Rothschild v. Tyco

Int’l, Inc., 83 Cal. App. 4th 488, 494 (2000). Because of the

similarity between the two Acts, federal decisions are deemed

persuasive authority in interpreting both state and federal

provisions. Laraway, 96 Cal. App. 4th at 274-75.

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7

California’s legislation also provides for a qui tam private

right of action (Cal. Gov’t Code § 12652), and is also designed

to prevent the submission of fraudulent claims for payment by the

public fisc. S. Cal. Rapid Transit Dist. v. Super. Ct., 30 Cal.

App. 4th 713, 725 (1994). Both the state and federal Acts

provide for treble damages plus civil monetary penalties, up to

$10,000, for each false claim for payment to which the offending

claimant is not entitled. 31 U.S.C. § 3729(a); Cal. Govt. Code §

12651.

A qui tam action is initially filed under seal in order to

afford the governmental entity time to determine whether it

wishes to prosecute the action. In the present case, both the

United States and the State of California elected not to

intervene, therefore allowing Stierli, as the qui tam plaintiff,

to represent their rights in prosecuting the claim against

Timberworks. Even if the government elects not to intervene,

however, it remains the real party in interest. State ex rel.

Bowen v. Bank of Am. Corp., 126 Cal. App. 4th 225, 237 (Cal. App.

2005); U.S. v. Health Possibilities, P.S.C., 207 F.3d 335, 341-42

(6th Cir. 2000).

The governmental real parties in interest retain the right

to dismiss a qui tam claim for good cause, despite objection by

the qui tam plaintiff, even if said parties have not previously

moved to intervene. California Government Code § 12652(e)(2)(A)

states:

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8

“The state or political subdivision may seek to dismiss the

action for good cause notwithstanding the objections of the

qui tam plaintiff if the qui tam plaintiff has been notified

by the state or political subdivision of the filing of the

motion and the court has provided the qui tam plaintiff with

an opportunity to oppose the motion and present evidence at

a hearing.”

Similarly, the federal Act also provides that the United States

may dismiss an action in its name

“notwithstanding the objections of the person initiating the

action if the person has been notified by the Government of

the filing of the motion and the court has provided the

person with an opportunity for a hearing on the motion.”

31 U.S.C. § 3730(c)(2)(A).

Stierli claims that because the State Act’s authorization

for dismissal comes within the context of a subsection applicable

to instances where intervention has in fact occurred, the State

lacks any standing to pursue a motion to dismiss in the absence

of such intervention. It cites the Allied Mold case, which 

uncritically recites the language of the statute under

circumstances where further statutory construction was not

necessary since the State had intervened in the controversy there

present. Allied Mold, 94 Cal. App. 4th at 856, 859. The Ninth

Circuit, however, in its Sequoia Orange decision, has noted that

the analogous federal statute “may permit the government to

dismiss a qui tam action without actually intervening in the case

at all.” Sequoia Orange, 151 F.3d at 1145, citing U.S. ex rel.

Kelly v. Boeing Co., 9 F.3d 743, 754 (9th Cir. 2003). Other case

authority is squarely in accord. 

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9

See, e.g., Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 932-33

(10th Cir. 2005) (the plain reading of the statute does not

support a requirement of intervention); Swift v. U.S., 318 F.3d

250, 251 (D.C. Cir. 2003) (intervention is necessary only if the

government wishes to proceed with the action, and dismissal does

not constitute proceeding with the action). 

Significantly, this interpretation is in accord with the

constitutional mandate that the False Claims Act passes muster

under a separation of powers analysis only if the government

retains sufficient control over qui tam actions pursued in its

name. Ridenour, 397 F.3d at 934; Nat’l Paint & Coatings Assoc.,

Inc. v. State of Cal., 58 Cal. App. 4th 753, 762 (Cal. App.

1997). The control over qui tam actions includes a right to

dismiss, and, as the Ridenour court states, “to condition the

Government’s right to move to dismiss an action in which it did

not initially intervene upon a requirement of late intervention

tied to a showing of good cause would place the FCA [False Claims

Act] on constitutionally unsteady ground.” Ridenour, 397 F.3d at

934. Moreover, even were intervention deemed essential as a

prerequisite for moving to dismiss, which this Court does not

believe to be the case, the Court still may construe the motion

to dismiss as impliedly including a motion to intervene, and

consider the motions to dismiss accordingly. Ridenour, 397 F.3d

at 934, n.13; Swift, 318 F.3d at 253. Consequently, because the

Court may entertain a motion to dismiss under either alternative,

it deems the present challenges to be properly before it.

Having established the initial propriety of both motions, we

now turn to the merits. 

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10

Both real parties in interest contend that the action has no

merit inasmuch as no False Claims Act violation has occurred. As

set forth above, the overall relative merits of an action may

determine whether a governmental entity has good cause to request

its dismissal. Laraway, 96 Cal. App. 4th at 276. The Court

agrees that no actionable violation has occurred under the

circumstances of this case.

The facts show that there had been full disclosure as to the

particulars concerning Timberworks’ bid both before CalTrans

awarded the project in question to Timberworks, and before any

claim for payment was submitted by Timberworks. By August 9,

2002, when Timberworks formally obtained the contract, CalTrans

had received three separate protest letters from Stierli, knew

the circumstances of the last-minute EnTerra bid, and knew

Timberworks’ justification for not including that bid in its

proposal. In addition, CalTrans had otherwise investigated the

sufficiency of Timberwork’s good faith DBE compliance. Not only

did CalTrans award the project with full knowledge as to all

those issues, it approved and paid Timberworks’ invoices even in

the face of the ongoing USDOT investigation, an investigation

with respect to which Timberworks had no participation and no

knowledge. Timberworks had both completed the project and

submitted all its payment requests by the time the USDOT issued

its decision on April 16, 2004.

In U.S. ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th

Cir. 1996), the Ninth Circuit made it clear that the False Claims

Act “attaches liability, not to underlying fraudulent activity,

but to the “claim for payment”. 

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The court explained that what constitutes an offense under the

Act is the knowing presentation of such a claim that is either

fraudulent of simply false. Id., citing U.S. ex rel. Hagood v.

Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). 

Significantly, Hopper concluded that there is no remedy under the

Act “absent actionable false certifications upon which funding is

conditioned.” Id. at 1267, emphasis added.

The Allied Mold case provides further explication in noting

that there cannot be a knowing presentation of a false claim for

payment where the government is fully aware of the facts

surrounding the claim and approves it. The court approvingly

cited the Seventh Circuit’s decision in U.S. ex rel. Durcholz v.

FKW, Inc., 189 F.3d 542, 544-45 (7th Cir. 1999) as follows:

“The government’s prior knowledge of an allegedly false

claim can vitiate a FCA action. If the government knows and

approves of the particulars of a claim for payment before

that claim is presented, the presenter cannot be said to

have knowingly presented a fraudulent or false claim. In

such a case, the government’s knowledge effectively negates

the fraud or falsity required by the FCA.”

In the present case, because CalTrans had full knowledge of

the circumstances surrounding Timberworks’ bid before any payment

request was ever submitted, there was no false claim, actionable

under the Act and directed to CalTrans, for which liability can

attach. With respect to the United States, not only did

Timberworks never submit a payment directly to the federal

government (its indirect submission through CalTrans for federal

funding necessarily implicates the same analysis applicable to

CalTrans), but in withdrawing federal funding and never paying

any monies there was not any “false or fraudulent claim paid or

approved” by the federal government in any event. 

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See, e.g., 31 U.S.C. § 3729(a)(2).

It follows that Stierli cannot make any viable claim here on

behalf of the governmental entities, and that failure constitutes

good cause for dismissing this action at the request of both the

State of California and the United States. Other factors,

however, also point towards dismissal. The State points out that

the allegations of Stierli’s Complaint points towards

improprieties on behalf of CalTrans, a supposed victim on behalf

of which Stierli purports to be suing. The Complaint, for

example, alleges at ¶ 26 that CalTrans acted in excess of its

authority because if failed to comply with federal law and

regulations governing DBE participation. The Complaint also, at

¶ 23, relies upon the USDOT’S finding that CalTrans had

improperly awarded the contract to Timberworks, despite the fact

that the USDOT report is ultimately a review of CalTrans rather

than Timberworks. (See Yokota Decl., ¶ 7). These allegations,

involving as they do CalTrans’ own policies and procedures in

awarding contracts, are not properly the subject of a claim under

the Act. The Allied Mold court notes that “the FCA is not an

appropriate vehicle for policing technical compliance with

administrative regulations. Allied Mold, 94 Cal. App. 4th at

865-66, citing Durcholz, 189 F.2d at 545, n.2. The court

concludes that failure to follow proper contracting practices, as

Stierli claims occurred here, is not a “proper vehicle” for

invoking the False Claims Act. Id.

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Although no issue has been raised concerning the work done 1

by Timberworks on the project in question, and even though

CalTrans had full knowledge of the circumstances surrounding its

bid before any request for payment was made, Stierli nonetheless

seeks treble damages in the amount of three times the 1.107

million contract price (totaling $3,321,000) and an additional

$10,000 per each of eighteen payment requests for a total claimed

liability of $3,501,000 on the part of Timberworks. (See

Stierli’s Memo of Points and Authorities in Support of Motion for

Summary Judgment, 12:9-14). 

13

The State further points to its legitimate interest in

ensuring that the False Claims Act is not “misused by

unsuccessful, disgruntled public contract bidders as a device to

intimidate competitors.” (Moving Points and Authorities, 9:24-

26). Otherwise, the State argues, “every award process could

potentially be converted into a CFCA action with the winning

bidder facing the specter of civil penalties and treble damages1

even when the state– the real party in interest– contends no

false claim was committed.” (Id. at 10:1-3). This also

constitutes a valid justification for moving for dismissal in

this matter. 

CONCLUSION

Based on the foregoing, both the State of California and the

United States have demonstrated valid justification for

dismissing the present action. First and foremost, no fraudulent

claim upon which liability can attach has been demonstrated. In

addition, the gravamen of Stierli’s claim is not susceptible to

remediation under the False Claims Act in any event, and other

legitimate factors in favor of dismissal have also been

identified. 

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Because oral argument will not be of material assistance, 2

the Court orders this matter submitted on the briefing. E.D.

Cal. Local Rule 78-230(h).

14

Because Stierli cannot show that these concerns are unfounded,

the Motions to Dismiss presently before the Court are GRANTED.2

Inasmuch as this ruling effectively disposes of the lawsuit, it

is not necessary to rule on either of the Cross Motions for

Summary Judgment also before the Court and the Court declines to

do so.

IT IS SO ORDERED.

DATED: July 10, 2006

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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