Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-07497/USCOURTS-cand-4_06-cv-07497-1/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

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA ex rel.

RICHARD WILSON and CHRIS MARANTO,

Plaintiffs,

v.

MAXXAM INC., a Delaware corporation;

THE PACIFIC LUMBER COMPANY, a

Delaware corporation; SCOTIA PACIFIC

COMPANY LLC, a Delaware limited

liability company; SALMON CREEK LLC,

a Delaware limited liability company;

and CHARLES E. HURWITZ, an

individual,

Defendants.

 /

No. C 06-7497 CW

ORDER DENYING

DEFENDANTS' MOTION

TO DISMISS

This is a qui tam action filed under the False Claims Act

(FCA) by Plaintiffs/Relators Richard Wilson and Chris Maranto, on

behalf of the United States, based upon allegations that Defendants

defrauded the United States into contributing $250 million toward

the purchase of the Headwaters Forest and Elk Head Springs Forest. 

The United States Attorney has declined to intervene in this 

action. Defendants Maxxam Inc. and Charles E. Hurwitz move to

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1

Defendants The Pacific Lumber Company, Scotia Pacific Company

LLC and Salmon Creek LLC (Pacific Lumber Defendants) have filed a

voluntary petition for reorganization under Chapter 11 of the

Bankruptcy Code in the U.S. Bankruptcy Court for the Southern

District of Texas. The filing of that bankruptcy petition

triggered an automatic stay of all judicial proceedings against

them. See 11 U.S.C. § 362(a). Pacific Lumber Defendants have

requested that the Bankruptcy Court apply the automatic stay to

Defendants Maxxam and Hurwitz. 

2

Defendant Hurwitz controls a majority of Defendant Maxxam's

stock and combined voting power: "As a result, Mr. Hurwitz is able

to control the election of the Company's Board of Directors and

controls the vote on virtually all matters which might be submitted

to a vote." Complaint, ¶ 38.

2

dismiss all causes of action against them.1 Plaintiffs oppose the

motion. The matter was heard on August 16, 2007. Having

considered all of the parties' papers and oral argument, the Court

denies Defendants' motion. 

BACKGROUND

According to Plaintiffs' complaint, this case began in late

1985, when Defendant Hurwitz, a corporate raider, initiated the

takeover by Defendant Maxxam of The Pacific Lumber Company.2

Included in Pacific Lumber's land was the largest privately owned

redwood forest in the United States. Before the takeover, Pacific

Lumber had carefully managed its redwood forests. Soon after the

takeover, however, it became clear that Defendants' priority was

short-term profits, not long-term sustainability. Defendant Maxxam

announced that it would escalate Pacific Lumber's logging

activities to pay off its debt. Pacific Lumber's conservative

forest practices became a thing of the past.

In the 1990's, Pacific Lumber Defendants were enjoined from

harvesting old-growth timber that served as a habitat for the

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marbled murrelet, an endangered bird. Pacific Lumber Defendants

responded by suing both the state and federal governments, arguing

that the enforcement of the Endangered Species Act constituted an

unlawful taking of their property. To resolve this dispute,

Defendant Maxxam, Pacific Lumber Defendants, the State of

California and the United States entered into an agreement under

which Pacific Lumber Defendants agreed to dismiss their pending

lawsuits and to sell their old-growth forest, known as the

Headwaters Forest, and other land, including the Elk Head Springs

Forest, to California and the United States. Headwaters Forest is

now a public wildlife reserve. 

As a condition of the purchase, Pacific Lumber Defendants

agreed to develop and to implement a sustained yield plan (SYP). A

SYP is a master plan for the operational, environmental, economic

and other issues related to timber harvesting over a large area; it

is based on a computer simulation that estimates projected timber

growth and stocking requirements in relation to a proposed harvest. 

In 1997, Congress authorized the appropriation of $250 million

to purchase the land from Defendants. California agreed to pay an

additional $130 million. Before Congress would allocate any money,

however, Pacific Lumber Defendants had to dismiss their taking

suits and California had to approve the SYP. In addition, the

Secretary of the Interior had to issue an opinion of value. Both

the United States General Accounting Office and the Secretary of

the Interior concluded that the $380 million authorized for the

purchase fell within the appraised value of the land. 

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Pacific Lumber Defendants developed a SYP that included

different "alternatives": "Alternative 25a" provided for an average

annual harvest of 136 million board feet; "Alternative 25," Pacific

Lumber Defendants' preferred alterative, provided for an annual

permissible harvest of 178.8 million board feet per year. In

February, 1999, the California Department of Forestry and Fire

Protection (CDF) approved "Alternative 25a." Presented with the

lower figure, Defendant Hurwitz threatened to cancel the sale of

Headwaters Forest.

The United States Fish and Wildlife Service encouraged CDF to

approve Alternative 25. On March 1, 1999, Plaintiff Wilson, then

CDF Director, approved Alternative 25. At the time, Plaintiff

Wilson believed that the SYP model was accurate. He later learned,

however, that the SYP did not comply with California environmental

standards. For example, Pacific Lumber Defendants included

hardwoods in their SYP model and, even including hardwood

inventories, the residual stocking levels provided in the SYP were

below the Forest Practice Rules' minimum stocking standards. 

According to Plaintiffs, truthful disclosure of growth and yield in

the SYP would have resulted in an annual harvest of approximately

ninety to 125 million board feet per year, far less than the 178

million that Defendants needed to pay off their substantial debt. 

Plaintiffs allege that it was Defendants' debt, and not the

long-term sustainability of Pacific Lumber Defendants' timber

harvesting practices, that determined the outputs of the SYP model. 

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Plaintiffs estimate that Pacific Lumber Defendants erroneously

increased their harvest forecasts by approximately thirty percent. 

Plaintiff Wilson would not have approved the SYP had he known it

was false. 

Just a couple of years after the Headwaters Forest sale was

completed, issues arose with the SYP. On November 16, 2001,

Plaintiff Maranto, a CDF Sustained Yield Forester, received a memo

from CDF Humboldt Ranger Unit inspectors that concluded: "As

matters have developed, we are concerned that the SYP document is

viewed by [Pacific Lumber Defendants] as an academic modeling

exercise with little or no connection to any actual on-the-ground

practices that are implemented." Complaint, ¶ 108. In 2002,

Plaintiff Maranto noted inconsistencies in Pacific Lumber

Defendants' SYP modeling outputs. In a September, 2002 email to

his supervisors, Plaintiff Maranto noted that Pacific Lumber

Defendants have "a lot of explaining to do." A few months later,

he sent another email to his supervisors: "I don't know if all this

is nothing more than a comedy of errors, or outright fraud

purposefully devised to liquidate as much as possible, or the

Department has been dealing with a bunch of amateurs since day one,

but it is mind boggling that some very basic modeling elements

could have been innocently overlooked." Complaint, ¶ 117.

In an April, 2003 meeting, Plaintiff Maranto expressed his

concerns with the Pacific Lumber Defendants' SYP modeling to then

CDF Director, Andrea Tuttle, and others at CDF. Specifically, he

noted the use of hardwoods in meeting residual stocking levels, the 

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3Plaintiffs explain that "silviculture" is the "practice of

growing trees by determining how a stand of trees should be tended,

harvested, and regenerated to achieve future stand conditions." 

Complaint, ¶ 56 n.2. 

6

conversion to Douglas fir, allowing Defendants to harvest more in

the front-end of the harvest schedule, and the apparent liquidation

of conifers in certain silviculture regime modeling routines.3 He

informed Ms. Tuttle that "competent foresters don't make all of

these kinds of mistakes." Complaint, ¶ 122. In the summer of

2004, Plaintiff Maranto concluded that Pacific Lumber Defendants'

"1999 SYP model was likely intentionally skewed with a view to

inflating the permissible timber harvest." Complaint, ¶ 131.

In 2005, after learning of the high volume of timber Pacific

Lumber Defendants were harvesting, Plaintiff Wilson started

questioning the accuracy of the SYP. In July, 2006, Plaintiff

Wilson called Plaintiff Maranto to inquire about Pacific Lumber

Defendants' SYP modeling. Plaintiffs met the next month. Mr.

Wilson learned from Mr. Maranto that Pacific Lumber Defendants' SYP

was false because it was based on a flawed and distorted modeling

methodology. Collectively, the two concluded that Defendants had

defrauded the United States government by submitting a fraudulently

modeled SYP in order to obtain $250 million in federal funds for

the Headwaters and Elk Head Springs Forests.

DISCUSSION

Defendants argue that the Court lacks subject matter

jurisdiction over Plaintiffs' claims because the alleged

information that forms the basis of this action was already

publicly disclosed and because Plaintiffs are not "original

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sources." In the alternative, they contend that the statute of

limitations has run, the alleged fraud is not plead with

specificity, the alleged fraud is not the proper subject of a FCA

action and the United States has been paid in full and, therefore,

there is no false claim. 

I. Motion to Dismiss Under Rule 12(b)(1)

A. Legal Standard

Subject matter jurisdiction is a threshold issue which goes to

the power of the court to hear the case. Therefore, a Rule

12(b)(1) challenge should be decided before other grounds for

dismissal, because they will become moot if dismissal is granted. 

Alvares v. Erickson, 514 F.2d 156, 160 (9th Cir. 1975). A federal

court is presumed to lack subject matter jurisdiction until the

contrary affirmatively appears. Stock West, Inc. v. Confederated

Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989). 

Dismissal is appropriate under Rule 12(b)(1) when the district

court lacks subject matter jurisdiction over the claim. Fed. R.

Civ. P. 12(b)(1). A Rule 12(b)(1) motion may either attack the

sufficiency of the pleadings to establish federal jurisdiction, or

allege an actual lack of jurisdiction which exists despite the

formal sufficiency of the complaint. Thornhill Publ'g Co. v. Gen.

Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Roberts v.

Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987). 

B. Discussion

The False Claims Act provides:

No court shall have jurisdiction over an action under this

section based upon the public disclosure of allegations or

transactions in a criminal, civil, or administrative hearing,

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in a congressional, administrative, or Government Accounting

Office report, hearing, audit, or investigation, or from the

news media, unless the action is brought by the Attorney

General or the person bringing the action is an original

source of the information.

31 U.S.C. § 3730(e)(4)(A). 

To determine whether it has jurisdiction, the Court must first

determine whether there has been a prior “public disclosure” of the

“allegations or transactions” underlying the qui tam suit. United

States ex rel. Foundation Aiding The Elderly v. Horizon West, 265

F.3d 1011, 1014 (9th Cir. 2001). The Ninth Circuit instructs that,

although the public disclosure must reveal the “allegations or

transactions” underlying the plaintiff's complaint, the substance

of the disclosure "need not contain an explicit 'allegation' of

fraud, so long as the material elements of the allegedly fraudulent

'transaction' are disclosed in the public domain." Id. Nor need

the publicly disclosed documents "precisely mirror the allegations

stated in the qui tam lawsuit in order for the jurisdictional bar

to operate." United States ex rel. Rosales v. San Francisco

Housing Authority, 173 F. Supp. 2d 987, 995 (N.D. Cal. 2001). 

The Ninth Circuit further instructs:

In analyzing whether allegations of fraud were previously

disclosed, we must determine whether there was a public

disclosure of fraud which was “substantially similar to those

disclosed in the earlier . . . action.” See United States ex

rel. Lujan v. Hughes Aircraft Co., 162 F.3d 1027, 1033 (9th

Cir. 1998). In analyzing whether the transactions underlying

a relator's complaint were publicly disclosed, however, we

adopt the analysis first laid out by the District of Columbia

Circuit in Springfield Terminal:

[I]f X + Y = Z, Z represents the allegation of fraud and

X and Y represent its essential elements. In order to

disclose the fraudulent transaction publicly, the

combination of X and Y must be revealed, from which 

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readers or listeners may infer Z, i.e., the conclusion 

that fraud has been committed.

Foundation Aiding The Elderly, 265 F.3d at 1015 (quoting United

States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 654

(D.C. Cir. 1994)).

The Ninth Circuit has clarified that, although courts

sometimes speak of qui tam suits being barred based on "publicly

disclosed information," the "Act bars suits based on publicly

disclosed 'allegations or transactions,' not information." Wang v.

FMC Corp., 975 F.2d 1412, 1418 (9th Cir. 1992) (quoting U.S.C.

§ 3730(e)(4)(A)). The distinction between "information" and

"allegations or transactions," is not mere semantics: "where the

public knows of information proving an allegation, it necessarily

knows of the allegation itself. But the reverse is not always

true. An allegation can be made public, even if its proof remains

hidden." Id. Thus, even "allegations divorced from the

information upon which they are based can constitute public

disclosure." United States v. Alcan Electrical and Engineering,

Inc., 197 F.3d 1014, 1020 (9th Cir. 1999). Nonetheless, the prior

public disclosures must contain "enough information to enable the

government to pursue an investigation." Id. at 1019.

Defendants argue that there have been at least three earlier

lawsuits in which allegations were made that the SYP was developed

through the use of flawed, erroneous or fraudulent data,

undermining the validity of the conclusion that Pacific Lumber

Defendants' land can sustain long-term yields. In the petition for

writ of mandate in Environmental Protection Information Association

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v. California Department of Forestry and Fire Protection, filed in

1999 in the County of Sacramento Superior Court, the petitioners

sought to set aside CDF's decision approving Pacific Lumber 

Defendants' SYP; they alleged that the SYP "was inadequate and

incomplete and invalid" because it failed to provide "a clear

demonstration, through accurate facts, mapping, presentation of

current conditions, and existing constraints, of how the SYP will

achieve maximum sustained production of high quality timber

products." Defendants' Request for Judicial Notice, Ex. E, ¶ 106.

In another case filed in 1999 in the County of Sacramento Superior

Court, United States Steel Workers v. California Department of

Forestry and Fire Protection, the petitioners alleged that CDF

abused its discretion in approving Pacific Lumber Defendants' SYP

because it did "not satisfy the legal requirement to clearly

demonstrate how Pacific Lumber will achieve maximum sustained

production of high quality timber." Defendants' Request for

Judicial Notice, Ex. F, ¶ 18. 

A case filed by the District Attorney of Humboldt County in

1993 alleged that, in violation of California's Unfair Competition

Law, Pacific Lumber Defendants provided false information to the

government and fraudulently concealed required information from the

government in order minimize harvesting restrictions designed to

protect wildlife and water quality. The People of the State of

California v. The Pacific Lumber Company, Case No. DR030070,

Defendants' Request for Judicial Notice, Ex. G, ¶ 2. That suit

alleged that Pacific Lumber Defendants fraudulently took $300 

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million from the taxpayers of the United States and California. 

Id. It further alleged, as Plaintiffs here allege, that Pacific

Lumber Defendants' acts were motivated by the desire to increase

the permitted volume of their annual timber harvest in order to

meet the financial obligations imposed by their sale of almost a

billion dollars of bonds. Id. at ¶ 4. The allegedly false

information in Pacific Lumber Defendants' SYP in that suit,

however, concerned land slide projections, water quality and

sedimentation, not at issue here. Fraudulent SYP modeling based on

the improper inclusion of hardwoods and other allegations at issue

here were not alleged in that action. 

These public documents point to defects in the SYP. Like

Plaintiffs here, the County of Humboldt District Attorney alleged

that the SYP is fraudulent and that Pacific Lumber Defendants

defrauded the government, in part, so that they could harvest more

timber and pay off their mounting financial obligations. Like

Plaintiffs here, he alleged that American and California taxpayers

were defrauded. Like Plaintiffs here, the United States

Steelworkers alleged the Pacific Lumber Defendants failed to

explain how they would achieve maximum sustained production of

timber. The allegations here do not, as Defendants argue, mirror

the allegations made in the earlier lawsuits. As noted above,

however, the publicly disclosed documents need not mirror the

allegations stated in the qui tam lawsuit. Rosales, 173 F. Supp.

2d at 995. 

Plaintiffs correctly point out that the public documents upon

which Defendants rely do not disclose the facts on which Plaintiffs

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base this case. However, the public documents need not disclose

all the facts on which Plaintiffs base their case. See id. at 996

(concluding that, although all of the purported means by which the

defendants' fraud was perpetrated "may not have been commonly

known, the prior public disclosures contained enough information to

enable the government to pursue an investigation into them," which

was "enough to trigger the jurisdictional bar"). Rather, the

public documents "must contain enough information to enable the

government to pursue an investigation." Alcan, 197 F.3d at 1019.

Although the public documents at issue contain enough information

to alert the government to fraud in general, they do not contain

enough information to allow the government to pursue an

investigation into the alleged fraud at issue here. Further,

although the allegations are similar, they are not substantially

similar, as required in Foundation Aiding The Elderly, 265 F.3d at

1015. Therefore, the Court finds that there has been no prior

public disclosure of the allegations underlying this qui tam suit

and that it has jurisdiction. 

Even if there had been a prior public disclosure, this Court

would still have jurisdiction if one of Plaintiffs is an original

source. To be an “original source,” a plaintiff must have “direct

and independent knowledge of the information on which the

allegations are based,” and have “voluntarily provided the

information to the Government before filing an action.” 31 U.S.C.

§ 3730(e)(4)(B). The Ninth Circuit has held that an internal

federal government auditor, compelled to disclose fraud by the

terms of his employment, cannot "voluntarily" provide information

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pursuant to section 3730(e)(4)(B) and, therefore, cannot be an

original source. United States ex rel. Fine v. Chevron, U.S.A.,

Inc., 72 F.3d 740 (9th Cir. 1995) (en banc). The following year,

the Ninth Circuit held that an Army Corps of Engineers attorney was

an original source, despite his fiduciary responsibility to

disclose to his superiors what he thought the law required,

because, unlike the internal auditor in Fine, the attorney's "job

was not to expose fraud, but to draft contracts and perform other

legal services for the Corps.” Hagood v. Sonoma County Water

Agency, 81 F.3d 1465, 1476 n.19 (9th Cir. 1996). Two years later,

the Ninth Circuit held that a Resident Representative

Administrative Contracting Officer for the Office of Naval

Research, whose employment duties included "some aspect" of

auditing work, could not be an original source. United States ex

rel. Biddle v. Bd. of Trustees of Leland Stanford, Jr. Univ., 161

F.3d 533, 542 (9th Cir. 1998). The court reasoned, "The purposes

underlying the FCA are to encourage individuals to report potential

fraudulent activities being committed against the government, and

to reward them for doing so. But where a government employee is

paid to perform this function, the employee should not receive a

windfall for merely doing his job." Id. 

Defendants argue that, under Fine and Biddle, Plaintiffs

cannot be original sources. Plaintiffs respond that Plaintiff

Maranto is an original source; they do not contend that Plaintiff

Wilson is an original source. Plaintiffs note that, unlike the

government employee in Fine, Plaintiff Maranto is not a federal

employee. He is employed by the State of California. Defendants

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argue that this is an irrelevant distinction; however, they cite no

case that has applied Fine to state employees. Plaintiff Maranto

is not compelled by the terms of his employment to disclose fraud

to the federal government. He is paid to review sustained yield

plans and report any fraud to state officials, not to the United

States. Therefore, the Court concludes that Plaintiff Maranto can

"voluntarily" provide information pursuant to section 3730(e)(4)(B)

and, therefore, he is an original source.

II. Motion to Dismiss Under Rule 12(b)(6)

A. Legal Standard

A complaint must contain a “short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R.

Civ. P. 8(a). A plaintiff need not set out in detail the facts

upon which he or she bases her claim; however, the plaintiff must

"give the defendant fair notice of what the plaintiff’s claim is

and the grounds on which it rests.” Conley v. Gibson, 355 U.S. 41,

47 (1957); Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1964

(2007). As the Supreme Court recently explained, "While a 

complaint attacked by a Rule 12(b)(6) motion to dismiss does not

need detailed factual allegations, a plaintiff's obligation to

provide the 'grounds' of his 'entitlement to relief' requires more

than labels and conclusions, and a formulaic recitation of the

elements of a cause of action will not do." Bell Atlantic Corp.,

127 S. Ct. at 1964-65 (inner citations and alteration omitted). 

Rather, the allegations in the complaint "must be enough to raise a

right to relief above the speculative level." Id. at 1965. All

material allegations in the complaint, "even if doubtful in fact," 

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are assumed to be true, id., and are construed in the light most

favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d

896, 898 (9th Cir. 1986). 

B. Discussion

1. Statute of Limitations

The False Claims Act bars any civil action brought (1) more

than six years after the date on which the violation is committed

or (2) more than 3 years "after the date when facts material to the

right of action are known or reasonably should have been known by

the official of the United States charged with responsibility to

act in the circumstances, but in no event more than 10 years after

the date on which the violation is committed, whichever occurs

last." 31 U.S.C. § 3731(b). For a qui tam plaintiff, the threeyear limitations period runs from the date the plaintiff knew or

reasonably should have known of the facts material to the right of

action. United States ex rel. Hyatt v. Northrop Corp., 91 F.3d

1211, 1213 (9th Cir. 1996).

Defendants argue that, under both the first and second prongs,

the statute of limitations has lapsed on Plaintiffs' claims and,

therefore, the Court should dismiss this case. They note that the

alleged violation took place over six years ago, in 1999, when CDF

approved the allegedly fraudulent SYP. And they point out that,

according to Plaintiffs' complaint, Plaintiff Maranto first

discovered in 2001 that the computer modeling Pacific Lumber

Defendants used for their SYP was problematic; in 2002, he informed

his supervisors of his concerns regarding the SYP modeling on at 

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least four occasions. Yet, Plaintiffs did not bring this complaint

until December, 2006. 

Plaintiffs respond that their suit should not be dismissed on

statute of limitations grounds unless their complaint alleges facts

demonstrating that the second prong, containing a tolling

provision, does not apply. See United States v. Tech

Refrigeration, 143 F. Supp. 2d 1006, 1007 (N.D. Ill. 2001) (noting

that "the government would have pleaded itself out of court,

requiring dismissal of the complaint," if the facts alleged in the

complaint demonstrated that the tolling provision did not apply). 

They note that the complaint does not allege that, prior to meeting

with Plaintiff Wilson in 2006, Plaintiff Maranto knew that the SYP

was a condition of the Headwaters and Elk Head Springs Forests

appropriation and that Plaintiff Wilson would not have approved the

SYP if he had known it was erroneous. Further, according to the

complaint, it was not until the summer of 2004 that Plaintiff

Maranto concluded that Pacific Lumber Defendants had intentionally

skewed the SYP. See Complaint, ¶ 131. 

The Court agrees that it is not "apparent from the face of the

complaint that the claim is time-barred." La Grasta v. First Union

Sec., Inc., 358 F.3d 840, 848 (9th Cir. 2004) (inner citations

omitted). Therefore, it cannot dismiss Plaintiffs' complaint on

statute of limitations grounds.

2. Required Specificity

"In all averments of fraud or mistake, the circumstances

constituting fraud or mistake shall be stated with particularity." 

Fed. R. Civ. P. 9(b). Defendants contend that Plaintiffs fail to

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plead with the specificity required by Rule 9(b), obliging the

Court to dismiss the allegations against them. As in any cause of

action sounding in fraud, the allegations of a FCA claim must be

plead with particularity. Bly-Magee v. California, 236 F.3d 1014,

1018 (9th Cir. 2001). As such, they must be "'specific enough to

give defendants notice of the particular misconduct which is

alleged to constitute the fraud charged so that they can defend

against the charge and not just deny that they have done anything

wrong.'" Id. at 1019 (quoting Neubronner v. Milken, 6 F.3d 666,

672 (9th Cir. 1993)). However, the plaintiff need not "allege, in

detail, all facts supporting each and every instance of [a FCA

claim] over a multi-year period." United States ex rel. Lee v.

Smithkline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir. 2001); see

also Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997) (where

complaint asserting claims of improper revenue recognition

identified (i) some of the specific customers defrauded, (ii) the

type of conduct at issue, (iii) the general time frame in which the

conduct occurred, and (iv) why the conduct was fraudulent, it was

“not fatal to the complaint that it [did] not describe in detail a

single specific transaction . . . by customer, amount, and precise

method”). 

Plaintiffs have attempted to plead the elements of a FCA claim

with respect to Pacific Lumber Defendants and Defendant Maxxam

(which allegedly "controls and directs" the Pacific Lumber 

Defendants' activities). Their allegations are sufficient. 

Rule 9(b) may be relaxed where the evidence of fraud is within a

defendant's exclusive possession, as it may be here. Lee, 245 F.3d

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at 1051; United States ex rel. Walsh v. Eastman Kodak Co., 98 F.

Supp. 2d 141, 147 (D. Mass. 2000) (noting that Rule 9(b) was

relaxed "somewhat, because the facts relating to the alleged fraud

are 'peculiarly within the perpetrator's knowledge'"). 

Plaintiffs' alter-ego allegations concerning Defendant Hurwitz

are also sufficient. Defendants argue that Plaintiffs' complaint

does not contain facts establishing that Defendant Hurwitz 

exercised complete dominion and control and that this domination

was used to commit fraud. The complaint includes an excerpt from a

SEC report that explains that Defendant Hurwitz "controls the vote

on virtually all matters which might be submitted to a vote" of

Maxxam stockholders. Complaint, ¶ 38. See In re Napster, Inc.

Copyright Litig., 354 F. Supp. 2d 1113, 1122 (N.D. Cal. 2005)

(holding an allegation that one of the major shareholders had

“essentially full operational control” over Napster during a

specified period was sufficient to justify allowing plaintiffs to

proceed on an alter-ego theory). A parties' alter-ego theory need

not be alleged with particularity. Matlink, Inc. v. Matlink, Inc.,

2006 U.S. Dist. LEXIS 83508 (S.D. Cal. 2006).

Therefore, the Court will not dismiss Plaintiffs' complaint

for failure to plead with specificity.

3. Substantive Arguments

Defendants contend that judicially noticed facts establish

that the United States received full value for the agreement and,

therefore, there can be no false claim. According to Defendants,

the allegedly fraudulent SYP was not essential to the United

States' decision to allocate $250 million to purchase the land at

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issue. They point out that the land was appraised at between $135

to $405 million, an appraisal the General Accounting Office

approved. The fact that the United States may have been paid in

full in accordance with the agreement, however, is irrelevant if

the purchase price was influenced by fraud. Further, as Plaintiffs

note, Defendants ask the Court to make findings on questions of

fact that cannot be made on the record provided, even including the

judicially noticed documents. 

Defendants further contend that the alleged fraud at issue is

not within the proper scope of a FCA action. They argue that

Plaintiffs' claim concerning an allegedly "fraudulently modeled"

SYP is nothing more than a dispute over scientific methods and that

the FCA does not concern itself with scientific disputes. See

Wang, 975 F.2d at 1421 ("the phrase 'known to be false' in that

sentence does not mean 'scientifically untrue'; it means 'a

lie.'"). Indeed, the Ninth Circuit has instructed, "Proof of one's

mistakes or inabilities is not evidence that one is a cheat." Id.

Plaintiffs counter that Defendants' argument finds no support on

the face of the complaint. They note that they allege that

Defendants knew that they were defrauding the federal government; 

the complaint links the SYP model manipulations to Defendants'

financial objectives. 

Plaintiffs' complaint states a FCA claim and, therefore, the

Court will not dismiss it for failure to state a claim.

CONCLUSION

For the foregoing reasons, Defendants' Motion To Dismiss

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4

Defendants' Request for Judicial Notice (Docket No. 18) is

GRANTED. Plaintiffs' objection to Exhibits B and C are without

merit. As Defendants note, these two exhibits are government

documents that are capable of accurate and ready determination. By

taking judicial notice of these public records, however, the Court

is only taking notice of the existence of these matters of public

record and "not of the veracity of arguments or disputed facts in

the document." Cactus Corner, LLC v. U.S. Dept. of Agriculture, 346 F. Supp. 2d 1075, 1099 (E.D. Cal. 2004). Defendants' Further

Request for Judicial Notice (Docket No. 19) is also GRANTED. 

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(Docket No. 17) is DENIED.4

IT IS SO ORDERED.

9/20/07

Dated: ________________________ 

CLAUDIA WILKEN

United States District Judge

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