Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_03-cv-00949/USCOURTS-caed-2_03-cv-00949-10/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

EL DORADO IRRIGATION DISTRICT,

a political subdivision of the

State of California,

NO. CIV. S-03-949 LKK/GGH

Plaintiff,

v. O R D E R

TRAYLOR BROS., INC., an 

Indiana corporation,

Defendant.

 /

AND RELATED COUNTER-CLAIMS.

 /

Pending before the court are three motions for summary

adjudication. As I explain below, like everything in this case,

the motions are complex, and the resolution less than perfectly

straight-forward.

The first motion is filed by Traylor Brothers, Inc. (“TBI”).

It seeks to have certain damages claimed by plaintiff, El Dorado

Irrigation District (“EID”), denied on the grounds that the

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 1 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1 The facts stated in the text are undisputed unless

otherwise noted. EID improperly submitted a separate statement of

undisputed facts with its reply, which the court will not formally

consider. See Local Rule 56-260(b) and (f). 

2

contract expressly limits the collection of “delay damages” to the

liquidated amount of $500 per day. Plaintiff opposes this motion

on the ground that the damages which they are seeking do not fall

under the delay damages provision of the contract, because rather

than delay damages, they are damages incurred by virtue of the need

to correct defective work performed by defendant and to complete

the project. 

The second and third motions are cross-motions for summary

adjudication on plaintiff’s False Claims Act and fraud causes of

action. Defendant argues that it never submitted anything to the

plaintiff which meets the definition of a false claim under the

Act, while plaintiff points to what they assert are false claims

made to it in the form of monthly billing statements.

I.

FACTS1

A. FACTS IN SUPPORT OF DELAY DAMAGES CLAIM

The Contract contains the following liquidated damages

provisions:

General Provisions

ART 18 – LIQUIDATED DAMAGES

A. It is understood and agreed by the parties that

damages for Contractor delay are expensive to litigate

and difficult to ascertain. Therefore, it is agreed

that as and for a separately bargained for liquidated

damage, and not as a penalty, the District [EID] shall

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 2 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

3

deduct or recover the amount set for the in the Contract

Agreement unless extensions of time granted by Owner

specifically provide for the waiving of liquidated

damages.

Special Provisions

§18.11 Liquidated Damages/Bonus: If the Project is

not Substantially Completed by Contractor and fully

operational within the Contract Time, or within any

period of extension authorized pursuant to section 8.10

or pursuant to a duly issued Change Order, Contractor

acknowledges and admits that EID will suffer damages and

that it is impracticable and infeasible to fix the

amount of actual damages. Therefore, it is agreed by

and between Contractor and EID that Contractor shall pay

to EID, as fixed and liquidated damages and not as a

penalty, Five Hundred Dollars ($500) for each calendar

day of delay until the Project is Substantially

Completed and fully operational, and that both

Contractor and Contractor’s surety shall be liable for

the total amount thereof, and that EID may deduct said

sums from any moneys due or that may become due to

Contractor. If liquidated damages begin to accrue prior

to the time for final payment, the amount accrued shall

be withheld from any progress payment that would

otherwise be due, in addition to any Project extension.

This liquidated damages provision shall apply to all

delays or any nature whatsoever, save and except only

delays found to be Excusable or Compensable pursuant to

section 8.10, herein above, or time extensions granted

by EID.

Agreement between EID and TBI, dated Nov. 1, 1999.

EID seeks to enforce the above-quoted liquidated damages term,

asserting it is entitled to liquidated damages in the amount of

$191,000.00. Compl., dated Apr. 7, 2003; EID’s Initial and

Supplemented Rule 26 Disclosure Statements Section C.1 (g).

EID also seeks to recover sums paid to various companies as

follows:

1. $1,538,313.00 for MWH’s extended project

management services beyond the contractual completion date;

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 3 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

2 This survey constitutes an admission as to the

misalignment, since TBI prepared it, and in his deposition TBI’s

4

2. $252,485.00 for EN2’s extended environmental

monitoring services; and

3. $1,571,888.00 for HPT’s extended water treatment

services.

It also seeks to recover $1,901.333.00 in public grant funds

lost allegedly due to delay in completion of the project.

EID’s Initial and Supplemented Rule 26 Disclosure Statements,

Section C.1.(a), (b), (c) and (h).

TBI alleged as a Sixteenth Affirmative Defense that the

damages specified above are barred because they are delay damages.

Answer and Countercl. for Declaratory Relief, dated May 12, 2003.

B. FACTS IN SUPPORT OF FALSE CLAIMS ACT AND FRAUD CLAIMS

In November 1999, EID entered into a contract with TBI which

required TBI to design and build a tunnel. Section 1 of the

“Agreement” portion of the contract, page 1 of Exhibit “1,”

specifies that TBI’s Scope of Work was to “provide complete design

and construction for the Project commonly referred to as ‘Mill-Bull

Tunnel and Associated Facilities,’. . . .”

In February of 2002, TBI wrote EID that “[w]e recognize our

responsibility for the [tunnel] alignment, and of course we’ll

maintain our field books for the record.” Deposition of John

McDonald at 161:17-162:23, Ex. 9. In October 2002, TBI published

its own “as-built” survey that shows a misalignment of the tunnel

graphically and tabularly.2

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 4 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

Project manager, John McDonald, authenticated it and described the

circumstances of its preparation. McDonald Dep. at 99-103, Ex. 4.

3 The Contract Drawings at Drawing No. MB-10 show the

straight line and 0.07% grade for the Tunnel with tolerances

established in Drawing MB-2, Note 8, of 6” vertical and 2’

horizontal. Contract, Drawing MB-10, “Tunnel Plan and Profile”,

attached to Ex. 5 of Decl. of Waddell; Dep. of McDonald at 384-385.

(TBI disputes that the design documents were properly incorporated

into the contract.) 

5

TBI’s Project Manager, John McDonald, testified at deposition

that the as-built tunnel exceeded the contract design tolerances

“by a wide margin” and that TBI did not follow the line and grade

specified in the contract. McDonald Dep. at 105:18-107:9.3 He

further testified that the contract required the tunnel excavation

to be done in a straight line. Id. at 103:10-105:16. 

The Contract provides that TBI could earn a Guaranteed Maximum

Price (“GMP”) of $11,280,960, which included a fixed “Contractor’s

Fee” of $789,940 (essentially a profit) and ‘TBI’s Cost of the Work

up to a maximum of $10,491,020. See Section 5 of the Agreement to

the Contract and see Mitteer Dec. at ¶ 7. 

The contract also provides that:

7.1 Owner shall make interim progress payments

in accordance with the Schedule of Values and the

General Conditions in an amount equal to 90 percent of

the value of work completed during the month, with the

remaining percentage, if any, to be disbursed at final

payment in accordance with the General Conditions.

Contractor’s applications for payment shall be submitted

on the 25th of the month and, provided that the

application is timely and complete, and is accompanied

by the required waiver and release forms, payment shall

be made by the 10th day of the following month. 

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 5 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

6

14.01 A. Prior to submitting the first

application for a progress payment, Contractor shall

have obtained approval of the progress schedule, the

schedule of shop drawing submission and the schedule of

values of the Work. These schedules shall be

satisfactory in form and substance to Engineer. The

unit prices and lump sum component of the bid submittal

will subdivide the Work into component parts in

sufficient detail to serve as the basis for progress

payments during construction. Upon acceptance of the

schedule of values by Engineer, it shall be incorporated

into a form of application for partial payment

acceptable to Engineer. 

14.03 A. At least ten (10) days before each

progress payment falls due (but not more than once a

month), Contractor shall submit to Engineer for review

an application for partial payment completed and signed

by Contractor covering the Work completed as of the date

of application and accompanied by such supporting

documentation as its required by the contract documents

and also as Engineer may reasonably require. Each

subsequent application for partial payment shall include

an affidavit of Contractor stating that all previous

payments received on account of the Work have been

applied to discharge in full all of Contractor’s

obligations reflected in prior applications for partial

payment. The amount of retainage with respect to

progress payment will be as stipulated in the Agreement.

The “schedule of values” broke the GMP into 40 line items

which are discrete construction tasks or expenses; e.g., line item

24 for “tunnel excavation” broke the $3,211,844 of the GMP

allocated to that task down into 10,132 units at $317/each. The

breakdown was apparently based upon the length of the Tunnel in

feet. 

The contract provides that if, at completion, the “Cost of the

Work” plus the Contractor’s fee is less than the GMP, the

difference would be split between the Owner and the Contractor

50/50 (subject to an audit by the Owner of the Contractor’s

expenses). Mitteer Decl., ¶ 13, Sections 5.25, 6 and 6.4.2 of the

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 6 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

7

Agreement to the Contract. “Costs and the like which would cause

the Guaranteed Maximum Price to be exceeded shall be paid by the

Contractor without reimbursement by the Owner, excepted only as set

out elsewhere herein.” Section 5.2.1 of the Agreement to the

Contract. The Cost of the Work is to include costs incurred “in

repairing or correcting damaged or nonconforming Work executed by

the Contractor or the Contractor’s Subcontractor or suppliers.”

Mitteer Dec., ¶ 14; Section 6.1.8 of the Agreement to the Contract.

 TBI achieved “hole through” on September 21, 2002. Erdman

Dec., ¶ 4. TBI exited the mountain too low and too far to the

left of the specified exit point. McDonald Dep., Ex. 4. Exactly

how much it was off is disputed, but TBI concedes that it was at

least five feet too low.

Within a few weeks, TBI and the District separately surveyed

the entire tunnel and confirmed that it was substantially out of

tolerance for most of its length. McDonald Dep. at 99-103 & Ex.

4; Erdman Dec. at ¶¶ 6 and 7. Rather than following a gradual,

uniform slope from upstream to downstream, the tunnel drops to the

approximate mid-point, where it dips to nearly 11.5 feet below the

design grade. McDonald Dep. at 99-103 & Ex. 4; Erdman Dec. at 

¶ 8. TBI’s Project Manager testified that a line and grade

deviation by 2 feet or less is the maximum in the industry and the

9’+ deviation in this case is very unusual and something he had

never seen in his experience. McDonald Dep. at 151. 

TBI delegated sole responsibility for the alignment of the

tunnel to its Project Engineer, David Baddgor, who operated “pretty

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 7 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

8

independently” and without supervision, though he reported to John

McDonald. McDonald Dep. at 134 and 369-372. Mr. Baddgor was the

sole person with control over the line and grade of the machine.

Baddgor Dep. at 13-15; 64-67; 72-76; McDonald Dep. at 63-73; 72-73;

76-77; 132-134; 138-142; 151. He was responsible for performing

surveys and calculations in order to determine whether the bore was

on the proper course needed to insure that the tunnel was within

the contractual tolerances established by TBI's drawings. Baddgor

Dep. at 13-15. Mr. Baddgor did this through conventional survey

methods and calculations, and by adjusting the settings on a

laser-guidance device that transmitted coordinates to the Tunnel

boring machine operator. Baddgor Dep. at 64-76. Mr. Baddgor

testified that in April of 2002 he realized that the tunnel

alignment was wrong and adjusted the machine to try to bring the

tunnel back up to the proper place. Baddgor Dep. at 64-72. He

testified that his survey showed him that the elevation was

“substantially low” and that he told the TBI Superintendent, Bert

Dore, numerous times that they were off line and were trying to get

back although he did not say by how much they were off. Baddgor

Dep. at 72-73, 75-76. Two of TBI’s workers in the Tunnel also

testified in deposition that they knew the Tunnel boring machine

was boring “uphill.” Rodriguez Dep. at 52:17-22; 52:23-53:6;

53:11-55:25; 60:2-7; Bolle Dep. at 35:21-36:5; 37:5-8; 38:13-18;

39:23-40:2; 41:3-13; 41:22-25; 43:14-18; 51:7-52:24. MWH was

EID’s Engineer. Its employee, Mark Budwig, testified that he knew

the Tunnel was going uphill when he observed the water flowing in

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 8 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

9

the wrong direction. Dec. of Mark Budwig, Ex. 21 (Erdman Dec.).

John McDonald acknowledged that during the Spring and Summer

of 2002, EID asked him for evidence of the Tunnel’s alignment to

the contract line and grade. McDonald Dep. at 282. He testified

during this same time period the Project Engineer told him every

time that Mr. McDonald asked, that the Tunnel was in fact off line

and grade -- but Mr. McDonald claims that he never asked “by how

much?” McDonald Dep. at 63-64; 72-73; 132-133. 

After completion of Mr. Baddgor’s deposition, TBI located and

produced Mr. Baddgor’s survey book maintained during the Project,

and made it available at the deposition of John McDonald. Firstman

Dec. at ¶ 19. McDonald testified that if he had looked at Mr.

Baddgor’s survey book and compared it to the contract drawings in

April of 2002 he would have known that the tunnel was low (by

roughly nine feet). McDonald Dep. at 362-369. 

TBI submitted a Payment Application to the District every

month for work that had been performed during the prior 30-day

period. Erdman Dec., Exs. A-K. Each Payment Application specified

the length of tunnel excavation, in linear feet, completed during

the previous month for which TBI sought payment. Erdman Dec., Exs.

A-K. Under the Contract, once MWH approved the Payment

Application, it became a representation of fact. Contract, Gen.

Conditions, Section 14.05B, attached to Waddell Dec. as Ex. B. The

District paid each payment application submitted between November

2001 and August 2002 in the amount recommended by the MWH. Pollard

Dec. at ¶ 5. No deductions were ever made to the tunnel excavation

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 9 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

4 It is strongly disputed whether the contract grade referred

to was that in the contract or simply a comparison between the

survey done by Baddgor and the survey done by CCS. TBI cites to

a previous statement by EID that acknowledge that the CCS survey

was compared to TBI’s survey and not with the as-planned location

of the tunnel. Ex. 20 to Budwig Dec. at 13:6-10.

10

request amounts on any of the payment applications. Pollard Dec.

at ¶ 5; Erdman Dec. at ¶ 12. EID paid each payment request without

deduction for defective tunnel excavation. Pollard Dec. at ¶ 5.

The District paid the following TBI Payment applications in

the following amounts: 

a. November 2001: $209,530.00 

b. January 2002: $ 33,489.00 

c. February 2002: $544,039.00 

d. March 2002: $578,277.00

e. April 2002: $550,898.00

f. May 2002: $498,096.00

g. June 2002: $526,030.00

h. July 2002: $546,878.00

I. August 2002: $532,365.00

 

Pollard Dec. at ¶ 4.

At a project meeting on June 11, 2002, as confirmed in the Job

Meeting Minutes circulated to all project participants, TBI

informed the District that California Construction Services (“CCS”)

was to finish a Survey check of tunnel vertical control, and that

the findings were to be confirmed “but preliminary report shows

they closed loop and matched TBI survey of tunnel alignment and

grade within a 1-1/4 inch.”4 McDonald Dep. at 285-291; Ex. F to

Supplemental Firstman Declaration.

////

////

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 10 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

11

II.

STANDARDS

Summary adjudication, or partial summary judgment “upon all

or any part of a claim,” is appropriate where there is no genuine

issue of material fact as to that portion of the claim. Lies v.

Farrell Lines, Inc., 641 F.2d 765, 769 (9th Cir. 1981) (“Rule 56

authorizes a summary adjudication that will often fall short of a

final determination, even of a single claim”) (citations omitted);

Playboy Enters., Inc. v. Welles, Inc., 78 F. Supp. 2d 1066, 1073

(S.D. Cal. 1999), aff’d in part, rev’d in part, on other grounds,

279 F.3d 796 (9th Cir. 2002); E.D. Local Rule 56-260(f). 

Under summary judgment practice, the moving party always

bears the initial responsibility of informing the

district court of the basis for its motion, and

identifying those portions of ‘the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any,’ which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the 'pleadings, depositions, answers to

interrogatories, and admissions on file.” Id. Indeed, summary

judgment should be entered, after adequate time for discovery and

upon motion, against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party’s

case, and on which that party will bear the burden of proof at

trial. See id. at 322. “[A] complete failure of proof concerning

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 11 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

12

an essential element of the nonmoving party's case necessarily

renders all other facts immaterial.” Id. In such a circumstance,

summary judgment should be granted, “so long as whatever is before

the district court demonstrates that the standard for entry of

summary judgment, as set forth in Rule 56(c), is satisfied.” Id.

at 323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986); See also First Nat'l Bank of Ariz. v. Cities Serv. Co.,

391 U.S. 253, 288-89 (1968); Secor Limited, 51 F.3d at 853. 

In attempting to establish the existence of this factual

dispute, the opposing party may not rely upon the denials of its

pleadings, but is required to tender evidence of specific facts in

the form of affidavits, and/or admissible discovery material, in

support of its contention that the dispute exists. See Fed. R.

Civ. P. 56(e); Matsushita, 475 U.S. at 586 n.11; See also First

Nat'l Bank, 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954

(9th Cir. 1998). The opposing party must demonstrate that the fact

in contention is material, i.e., a fact that might affect the

outcome of the suit under the governing law, Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169,

Assoc. of Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th

Cir. 1992) (quoting T.W. Elec. Serv., Inc. v. Pacific Elec.

Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987), and that the

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 12 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

13

dispute is genuine, i.e., the evidence is such that a reasonable

jury could return a verdict for the nonmoving party, Anderson, 477

U.S. 248-49; see also Cline v. Industrial Maintenance Engineering

& Contracting Co., 200 F.3d 1223, 1228 (9th Cir. 1999).

In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue of

fact conclusively in its favor. It is sufficient that “the claimed

factual dispute be shown to require a jury or judge to resolve the

parties' differing versions of the truth at trial.” First Nat'l

Bank, 391 U.S. at 290; See also T.W. Elec. Serv., 809 F.2d at 631.

Thus, the “purpose of summary judgment is to ‘pierce the pleadings

and to assess the proof in order to see whether there is a genuine

need for trial.’” Matsushita, 475 U.S. at 587 (quoting Fed. R.

Civ. P. 56(e) advisory committee's note on 1963 amendments); see

also International Union of Bricklayers & Allied Craftsman Local

Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir.

1985).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56(c); See also In re Citric Acid Litigation, 191 F.3d 1090, 1093

(9th Cir. 1999). The evidence of the opposing party is to be

believed, see Anderson, 477 U.S. at 255, and all reasonable

inferences that may be drawn from the facts placed before the court

must be drawn in favor of the opposing party, see Matsushita, 475

U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654,

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 13 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

14

655 (1962)(per curiam)); See also Headwaters Forest Defense v.

County of Humboldt, 211 F.3d 1121, 1132 (9th Cir. 2000).

Nevertheless, inferences are not drawn out of the air, and it is

the opposing party's obligation to produce a factual predicate from

which the inference may be drawn. See Richards v. Nielsen Freight

Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d

898, 902 (9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party

“must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no ‘genuine issue for trial.’”

Matsushita, 475 U.S. at 587 (citation omitted).

III.

ANALYSIS

A. DELAY DAMAGES

The central question raised by defendant’s liquidated damages

motion is whether the damages objected to by TBI are delay damages

within the meaning of that provision of the contract.

The plaintiff argues that a distinction should be made 

between what the liquidated damages provision covers, simple 

delay, and damages suffered outside of that provision. They

support this contention by citation to contract provisions

recognizing damages recoverable outside the liquidated damages

clause, even though they arguably could fall under the “delay”

umbrella.

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 14 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

5 [If] Contractor fails within a reasonable time after

written notice of Engineer to proceed and to correct defective Work

or to remove and replace rejected Work as required by Engineer in

accordance with paragraph 130.6.A, or if Contractor fails to

perform the Work in accordance with the contract documents . . .

Owner may, after seven (7) days written notice to Contractor,

correct and remedy such deficiency. . . All direct and indirect

costs of Owner in exercising such rights shall be charged against

Contractor in an amount verified by Engineer, and a change order

shall be issued incorporating the necessary revisions in the

contract documents and a reduction in the Agreement price. Such

direct and indirect costs shall include, in particular but without

limitation, compensation for additional professional services

required and all costs of repair and replacement of work of others

destroyed or damaged by correction, removal or replacement of

Contractor’s defective Work. Contractor shall not be allowed an

extension of the contract time because of any delay in performance

of the Work attributable to the exercise by Owner of Owner’s rights

hereunder.

Part 13.09 A.

6 “Owner may have the defective Work corrected or the

rejected Work removed and replaced, and all direct and indirect

costs of such removal and replacement, including compensation for

additional professional services, shall be paid by Contractor.” 

Part 13.07. 

15

1. Corrective Work

The contract provides two different remedies to EID in the

event that the Contractor performs defective work which it does not

then correct. Part 13.09 of the General Contract provides that

plaintiff may correct defective work, charging the cost to

defendant.5 Additionally, if the defective work is discovered

within one year of the completion of the Contract, then Section

13.07 provides that the work may be corrected by the Owner at the

contractor’s expense if the Contractor does not move to make the

corrections after seven days written notice.6 

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 15 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

16

Plaintiff contends that except for the public grant claim, all

the challenged damages were incurred by it while remedying the

defective work performed by TBI. As to the damages sought in

relation to the public grant, plaintiff maintains they are a result

not of the “delay” envisioned in the liquidated damages provision

of the contract, but rather due to the additional time that it took

to correct and complete the defective work as envisioned by the

different provisions in Part 13 of the contract. As explained

below, I conclude that there is a disputed issue of fact as to

whether the damages sought relative to the correction of defective

work are outside the scope of the liquidated damages clause. As

I also explain, the court concludes that the public grant damages

are within the clause. 

Basic principles of contract interpretation require that the

terms of the contract are to be read together. See Cal. Civ. Code

§ 1641 (“The whole of a contract is to be taken together, so as to

give effect to every part, if reasonably practicable, each clause

helping to interpret the other.”); In re Crystal Properties, Ltd.,

L.P., 268 F.3d 743, 748 (9th Cir. 2001) (“We must interpret the

contract in a manner that gives full meaning and effect to all of

the contract's provisions and avoid a construction of the contract

that focuses only on a single provision . . . .”). The instant

contract provides that the “liquidated damages provision shall

apply to all delays of any nature whatsoever” but the contract does

not define what constitutes a “delay.” (emphasis added). As noted

above, determining the scope of the term “delay” requires review

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 16 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

7 It is disputed whether the Work under the contract was ever

finished, and if so, when it was. Accordingly, the court cannot

presently resolve whether Part 13.07 or 13.09 applies.

8 Part 13.09 may also suggest that the correction work was

not to be considered as delay damages by providing that "if the

Contractor fails to perform Work in accordance with the contract

documents (including any requirements of the progress schedule)"

that the owner may then remedy the deficiency themselves and seek

payment from the Contractor for that work. Section 13.09 (emphasis

added).

17

of the contract as a whole. Alperson v. Mirisch Co., 250

Cal.App.2d 84, 90 (1967) (“even if one provision of a contract is

clear and explicit, it does not follow that portion alone must

govern its interpretation; the whole of the contract must be taken

together so as to give effect to every part.”). 

The broad reading of delay argued for by the defendant would,

in effect, undermine, if not nullify, the ability of the plaintiff

to seek recovery of correction damages as envisioned in §13.07 and

§13.09 since every correction that extended past the original due

date would be deemed a delay. Moreover, by providing a one year

“correction period,” part 13.07 expressly envisions that the EID

may need to make repairs to the project after the completion date,

implying that any extra time needed for the corrections would not

be considered a delay within the meaning of the liquidated damages

clause.7 To read the term delay as broadly as defendant maintains,

would make sections 13.07 and 13.09 inoperative; a result which

contract law disfavors.8 City of Atascadero v. Merrill Lynch,

Pierce, Fenner & Smith, Inc., 68 Cal.App.4th 445, 473 (1998). 

The question is thus, what, if any, of the contested damages

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 17 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

18

fall under sections 13.09 and 13.07's “direct and indirect” costs

language? Section 13.09's definition of such costs is very broad.

See n. 5. The provision expressly envisions the need to pay for

“additional professional services required.” From all that

presently appears, EID is seeking compensation for “additional

professional services” in the first three contested damage claims.

Each of those claims are requests for damages allegedly incurred

because plaintiff was required to pay for the additional services

of the three companies while the correction work was done on the

Tunnel. 

 The compensation sought for loss of public funding is more

difficult to categorize. The damages sought for the first three

claims allegedly are direct costs allegedly incurred by virtue of

the corrections that had to be made, and, given that they are

professional services, they are costs expressly contemplated by the

contract. For the loss of public grant funds, however, EID is not

seeking to recover for services that are directly linked to

correction work. Rather, it appears EID seeks compensation for

losses allegedly occasioned by the delay. As to this claim, the

contract appears to be ambiguous. Part 13 allows the owner to

collect damages accrued from both direct and indirect costs of

making corrections, while the liquidated damages clause says that

it shall apply to “all delays of any nature.” The question thus

hinges on what the contract intended, in this regard, to include

in the “indirect” costs mentioned in 13.07 and/or 13.09. 

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 18 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

9 Part 18 specifically says that the damages for “contractor

delay are expensive to litigate and difficult to ascertain.”

19

Both part 13.07 and 13.09 leave what constitutes an “indirect”

damage undefined. When looking at the contract as a whole, I

conclude that the defendant has the better argument on the loss of

public funds. The language in the liquidated damages clause

suggests that it was to cover all costs that could be attributed

to delay.9 Thus, where there is not a provision elsewhere in the

contract which provided for recovery of a loss, the plain language

in the liquidated damages clause prevails. EID would be able to

collect a maximum of $191,000 under the liquidated damages clause,

whereas it is seeking $1.9 million in loss of public grant funds.

I conclude that the plain meaning prevails, and plaintiff may not

recover the lost public funds grant as a separate damage, but is

limited to the liquidated damages provision in that regard.

2. Termination and Completion

An alternative argument is derived from Part 15.02 of the

Contract which provides that EID may terminate the contract if the

Contractor “disregards the authority of Engineer,” Pt. 15.02(A)(8),

or “otherwise violates in any substantial way any provisions of the

contract documents.” Pt. 15.02(A)(9). EID claims that it

terminated TBI at some point, either prior to or during the time

it was undertaking the corrective work. This contention is

disputed. If there was an effective termination, Part 15.02(B)

provides that the Owner may finish the work and states that if the

costs of completion exceed the unpaid balance owed the contractor,

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 19 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

10 “If the unpaid balance of the Agreement price exceeds the

direct and indirect costs of completing the Work, including

compensation for additional professional services, such excess

shall be paid to the Contractor. If such costs exceed such unpaid

balance, Contractor shall pay the difference to Owner. Such costs

incurred by Owner shall be verified by Engineer and incorporated

in a change order, but in finishing the Work, Owner shall not be

required to obtain the lowest figure for the Work performed.” Part

15.02(B). 

11 In a footnote in their reply brief, defendant argues that

the damages for “lost power sales” should also be stricken. Reply

papers are generally limited to matters in the opposition papers.

It is improper for the moving party to "shift gears" and introduce

new facts, different legal arguments and particularly new motions

than were presented in the moving papers. See Lujan v. National

Wildlife Federation 111 L.Ed.2d 695, 721 n.5 (1990)(court has

discretion to disregard late-filed factual matters); Ira A. Brown

and Robert I. Weil, California Practice Guide: Civil Procedure

Before Trial at 12:106. The court will not address the damages for

lost power sales in this order.

20

the “Contractor shall pay the difference to the Owner.” Part

15.02(B).10 It further provides that “where Contractor’s services

have been so terminated by Owner, the termination shall not affect

any rights of Owner against Contractor then existing or which may

thereafter accrue.” Part 15.02(C). 

This provision further appears to permit recovery for the

first three contested damages. EID claims that it terminated TBI’s

right to proceed under the contract on July 16, 2003, or, at the

latest, on March 31, 2004. The contract’s plain meaning provides

that any costs incurred after the termination date that are

connected with completing the project work are recoverable. Thus,

defendant’s summary judgment motion must be denied as to the first

three contested damages, and granted as to the public funds

claim.11 

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 20 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

21

B. FALSE CLAIMS ACT

1. The Applications for Payment and Supporting Documentation

The primary issue relative to the False Claims Act causes of

action is whether TBI submitted a “false claim” within the meaning

of the Act. Although plaintiff relies on the applications for

payment submitted by the defendant to EID, it does not rely on any

actual language in the Payment Applications themselves. Instead,

EID asks the court to take a number of steps from those

applications, to their attachments, to the contract and then even

within the contract before the court could reach the conclusion

that there was a false statement. Put directly, the path is too

long, and the argument is too attenuated. Below, I follow the long

road traversed by plaintiff’s argument.

The applications for payment submitted by TBI contain little

content. They note that a “Schedule of Values” spreadsheet for the

month in question is attached. Erdman Dec., Exs. A-K. Some

applications include one or two lines of “notice” about certain

items which have been amended according to change orders. Id.

Most say that the costs for Item 12a are based on time and material

expenditures, and they all have a line that states when payment is

due and that the “total amount due includes all money earned minus

10% retainage minus all payments made to date.” Id. There is

simply no statement on the face of the applications which specifies

that the Tunnel has been constructed up to the time covered by an

application to meet the line, grade and tolerances which are in the

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 21 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

12 The court notes that there is dispute about whether the

design documents are actually part of the contract. 

22

design documents.12 

The plaintiff then turns to the schedule of values which is

attached to the applications for payment. It contains a list of

various construction tasks, such as “Perform Access Road and Site

Improvements” and “Furnish & Install Rock Bolt Supports.” Id.

These are then followed by columns which list the quantity, the

Unit, the Unit Price, the Total Contract Amount, Percent Complete

to Date, and the Total Earned to Date, along with a break down for

each month of what was completed and the dollars that were earned.

Id.

One of the items in the attachment, number 24, is “Excavate

Tunnel” of which there is a quantity of 10,132 (apparently the

expected length of the tunnel in feet) with a unit price of

$317.00. Id. Rather than including a percent completed like the

other listed items, the column just indicates the number of feet

drilled. Id. That number appears to be multiplied by the unit

price to get the total earned to date. Id. Generally, the term

“work” does not appear at all in the schedule of values, and if it

does it is in the sense of “road work” or “delay in work.” Id.

EID then directs the court to Part 14 of the contract which

addresses the “Payments to Contractors and Completion.” Part 14.01

provides that prior to submitting the first application for a

progress payment the “schedule of values of the Work” was to be

approved by the Engineer. Part 14.03 then continues that

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 22 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

23

“Contractor shall submit to Engineer for review an application for

partial payment completed and signed by Contractor covering the

Work completed as of the date of the application and accompanied

by such supporting documentation as is required by the contract

documents and also as Engineer may reasonably require.” EID claims

that this language, which requires the payment applications to

cover the “Work completed as of the date of the application,” is

the certification needed to make the payment applications false

claims. 

The conclusion that there has been a false claim, however,

requires resort to yet other part of the contract. Part 1 of the

contract defines the term Work to mean: “The entire completed

construction of the various separately identifiable parts thereof

required to be furnished under the contract documents. Work is the

result of performing services, furnishing labor and furnishing and

incorporating materials and equipment into the construction, all

as required by the contract documents.” This, plaintiff claims,

demonstrates that the payment claims certified that the tunnel

excavations were in accordance with the design specifications.

To summarize, the contract defines Work to mean the

performance of services “as required by the contract documents,”

the contract requires that the applications for payment be

submitted to cover “the Work completed,” and the payment

applications that were thus submitted, EID claims, certified that

they were for work completed as required by the contract documents.

The problem with plaintiff’s argument is that, despite the effort,

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 23 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

24

the court simply does not find that the circumstances justify a

conclusion that the Payment Applications meet the statutory

definition of a false claim. 

2. Was there a False Claim?

 The statute defines a claim as follows:

"Claim" includes any request or demand for money,

property, or services made to any employee, officer, or

agent of the state or of any political subdivision, or

to any contractor, grantee, or other recipient, whether

under contract or not, if any portion of the money,

property, or services requested or demanded issued from,

or was provided by, the state (hereinafter "state

funds") or by any political subdivision thereof

(hereinafter "political subdivision funds").

Cal. Gov’t Code § 12650(b)(1). TBI argues that the claim that they

submitted, i.e., the payment applications, were not false because

they accurately requested payment for the number of feet excavated

and nothing more. Although the excavation was conducted at the

wrong angle, TBI argues that all the claim for payment asserted was

that the Contractor had excavated a certain number of feet at the

time the request for payment was submitted. EID, however, says

that the schedule of values as defined in the contract was not

meant to merely indicate the excavation of a certain number of

feet, rather a certain number of feet excavated in compliance with

the contract documents, which they reason includes the design

documents. 

As defendant maintains, the payment applications, vel non, do

not state that they are seeking payment for excavations at a

certain line or grade. Nonetheless, the court must determine

whether these statements falsely certified that they were in

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 24 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

13 The California courts recognize that the state’s False

Claims Act is patterned on the federal statute, see City of Pomona

v. Superior Court, 89 Cal.App.4th 793, 801 (2001), and thus in the

absence of California authority, state courts may look to federal

cases for guidance as to the proper construction of the statute.

14 The company sought an equitable adjustment to the contract

amount they had with the government on the grounds that they were

performing more work than had been expected under the contract.

The primary source of proof were falsified work orders. Id. at

524-27. Prior to the fraud being discovered, the government

increased funding up to the amount it would have cost the company

to hire one and a half new workers to handle the asserted increased

work load.

25

compliance with the contract design documents. 

Neither the parties’ briefs, nor the court’s own research, 

has revealed any authority directly addressing how far from the

actual claim a court should go before finding a false statement

underlying the cause of action. The cases discussed below,

however, provide some guidance. 

EID points to a Tenth Circuit case where the court found that

there was a violation of the federal False Claims Act when the

document which constituted the claim was not directly false, but

was dependent upon underlying documents which were false. See Shaw

v. AAA Engineering & Drafting, Inc., 213 F.3d 519, 530 (10th Cir.

2000).13 In Shaw, the company had falsified work orders in order

to make it appear that more work had been done by the company than

had actually been performed.14 The court found that “[s]imply

because the production quantities recorded on the work orders did

not determine the exact amount of the settlement does not eradicate

a connection between the work orders and the equitable adjustment.”

Id. The path from the request for an equitable adjustment in that

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 25 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

15 Although the court’s holding does not, in terms, extend to

violations of a contract provision, there does not appear to be any

logical reason to distinguish between the violation of the law in

Lum versus the violation of a contract here. The cases and the

legislative history of the federal False Claims Act indicate that

the Act was not meant to be a catch-all provision for the violation

of any law. The same should apply for contracts where contract law

itself provides an adequate remedy. See, e.g., Lum v. Vision

Service Plan, 104 F.Supp.2d at 1241-42 (holding that there are

other remedies for regulatory violations and that the FCA should

not be used unless there is an express false certification); and

see Mikes v. Straus, 274 F.3d 687, 699 (2d Cir. 2001) (stressing

that the FCA was not “designed for use as a blunt instrument to

enforce compliance” with all regulations, rather only those that

26

case and the work orders was direct, however, and the path in the

instant case is considerable more extended and altogether less

plainly connected. In Shaw, the company had actually altered the

work orders, making their “false” nature apparent. In this case,

there is no proof presented of a specific act of falsification in

the payment applications or in anything the company relied on.

Thus, Shaw does not provide direct support for plaintiff’s claim.

In a case from Hawaii, a district court found no “false claim”

where bills were submitted for payment for medical services

provided even though in providing those services the company had

violated federal law by charging a co-payment to the indigent

customers to whom it was providing services. Lum v. Vision Service

Plan, 104 F.Supp.2d 1237, 1240-41 (2000). Although the law forbade

the charging of a co-payment, the court concluded that the bills

submitted to the government were not false because the billings did

not impose the co-payment nor did they promise compliance with the

law. Id. The court held that “violations of laws, rules, or

regulations alone do not create False Claims Act liability.” Id.15

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 26 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 are a precondition to payment.); S. Rep. No. 99-345, at 9 (1986).

27

Lum relies upon a Ninth Circuit case which holds that a

violation of law without more does not rise to liability under the

FCA; rather, there must be an actual false certification of

compliance with the law to impose liability under a false

certification theory. U.S. ex rel. Hopper v. Anton, 91 F.3d 1261,

1266 (9th Cir. 1996).

In the matter at bar, the section on the application for

progress payments states that the applications shall cover the

“[w]ork completed.” Thus, there does not appear to be a

requirement of direct certification that the work complied with the

design documents. The lack of a requirement for direct

certification in the contract thus would seem to preclude liability

predicated upon presenting a false claim. Nonetheless, another

premise for liability is contained in the False Claims Act.

Under sections 12651(a)(1) and (2), liability may also be

predicated upon knowingly causing a false claim to be presented or

made. I turn to whether there is a viable claim under this

“causing” provision. 

Part 14.05 of the contract requires that the Engineer review

the Payment Applications prior to recommending payment. The

section provides that the Engineer’s recommendation “will

constitute a representation by Engineer to Owner . . . that the

Work has progressed to the point indicated; that, to the best of

Engineer’s knowledge, information and belief, the quality of the

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 27 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

28

Work is in accordance with the contract documents.” While the

provision may be read as supporting the proposition that the

applications for payment caused the Engineer to certify that the

excavation was done in compliance with the contract documents, it

then deviates from a true false claim predicate since it limits

certification to the Engineer’s knowledge rather than objective

fact. Moreover, later language further qualifies the effect of the

certification by providing that the Engineer’s recommendation “will

not be deemed to have represented that exhaustive or continuous onsite inspections have been made to check the quality or quantity

of the Work, or that the means, methods, techniques, sequences, and

procedures of construction have been reviewed . . . .” 

Chief Judge Levi recently held that “[t]he prevailing law is

that ‘regulatory violations do not give rise to a viable FCA

action’ unless government payment is expressly conditioned on a

false certification of regulatory compliance.” U.S. ex rel. Swan

v. Covenant Care, Inc., 279 F.Supp.2d 1212, 1221 (E.D. Cal. 2002);

Lum v. Vision Service Plan, 104 F. Supp. 2d 1237, 1242 (D. Haw.

2000) ("[a]bsent express false certifications upon which funding

is conditioned, the False Claims Act provides no remedy"). As I

indicated above, I can conceive no reason to give greater weight

to contract provisons than duly-adopted regulations. Given the

qualifying language, the court cannot find an express statement of

compliance with the design documents, nor any clearly false

information in the applications for payment themselves.

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 28 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

29

a. Implied Certification

EID argues an alternate theory, “implied certification,” which

would impose a lower hurdle for liability. As I explain below,

there is a dispute among the circuits as to whether or not an

implied certification suffices to support a cause of action under

the False Claims Act. 

In Swan, the court included a footnote which observed that it

had previously “rejected plaintiffs' implied certification theory,

noting that the Ninth Circuit has not adopted the implied

certification theory of FCA liability recognized by some courts.”

279 F.Supp.2d at 1216, n. 3. A number of other courts have also

concluded that the Ninth Circuit has not adopted an implied

certification theory. See Lum v. Vision Service Plan, 104

F.Supp.2d at 1241-42; U.S. ex rel. Hopper v. Anton, 91 F.3d 1261,

1267 (9th Cir. 1996) (“For a certified statement to be ‘false’

under the Act, it must be an intentional, palpable lie. Innocent

mistakes, mere negligent misrepresentations and differences 

in interpretations are not false certifications under the Act.”

(internal citations omitted)); U.S. ex rel. Graves v. ITT

Educational Services, Inc., 284 F.Supp.2d 487, 497 (S.D. Tex. 2003)

(“The Fifth Circuit, with the Second, Fourth, Ninth, and District

of Columbia Circuits, has held that a claim under the False Claims

Act is ‘legally false’ only where a party affirmatively certifies

compliance with a statute or regulation as a condition to receiving

governmental payment or property”); see also Shaw v. AAA

Engineering & Drafting, Inc., 213 F.3d at 532 (10th Cir. 2000)

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 29 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

16 The court said that the “forms do not contain any

certification concerning regulatory compliance.” Hopper, 91 F.3d

at 1267.

30

(citing Ninth Circuit cases the court found that “[n]ot all courts

have embraced the theory that an FCA suit may be based on an

implied certification.”). 

Despite the weight of authority to the contrary, one case from

the Central District of California has recently found that the

implied certification theory was consistent with the legislative

history surrounding the federal FCA. U.S. ex rel. Holder v.

Special Devices, Inc., 296 F.Supp. 2d 1167, 1176 (C.D. Cal. 2003).

The court found that Hopper (the only Ninth Circuit case cited in

the list above and the one upon which most of the other cases rely)

did not actually reach the question of implied certification. Id.

at 1176. It is true that it is difficult to resolve whether the

court in Hopper was focusing on the lack of a certification or the

lack of a requirement for certification. Id. at 1266.16

Nonetheless, the Hopper court does emphasize that “[m]ere

regulatory violations do not give rise to a viable FCA action”

particularly where “regulatory compliance was not a sine qua non

of receipt of state funding.” Id.

Holder distinguished Hopper’s statements requiring an express

certification largely on the ground that the legislative history

of the federal act intended to allow implied certification claims.

Without entering the thicket of debate about when it is appropriate

to consult legislative history, I note that the legislative history

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 30 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

17 It should also be remembered that it is legislative

history of the federal and not the state act. There is nothing to

indicate that the state legislature was aware of the cited history

and relied on it in adopting the state statute.

31

cited is far from clear on the subject.17 Both Holder and Shaw

rely on a Senate Committee report stating that a false claim under

the FCA “may take many forms, the most common being a claim for

goods or services not provided, or provided in violation of

contract terms, specification, statute, or regulation.” S. Rep.

No. 99-345, at 9 (1986). This language may demonstrate an intent

that the federal FCA address claims relating to both the number of

services provided and the content of the services; it does not,

however, provide any insight into the clarity required in the claim

itself.

Moreover, this court finds persuasive the reasoning of the

Hopper court that there are “administrative and other remedies for

regulatory violations,” and of course the same may be said for

contract violations as well. Contrary to plaintiff’s contention

at oral argument, the congressional history does not suggest that

the violation of contract terms should be treated differently than

violations of laws or regulations which bind those seeking payment

from the government. I conclude that, even assuming the propriety

of resort to legislative history, that history (upon which Holder

relies) is not clear enough to require this court to depart from

the weight of authority holding that the Ninth Circuit has 

rejected implied certification claims. 

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 31 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

18 This finding extends to the causes of action brought under

all three of the different FCA sections since they all require a

false claim of some sort. 

19 Of course, the project owner who desires exact information

can require a direct and unambiguous certification.

32

Hence, finding that no implied false certification theory

exists in this circuit, the court finds that there was no false

claim submitted in the applications for payment.18 Indeed, an

implied certification doctrine has the potential to open the door

to a flood of cases involving no more than breaches of contract.

It seems unlikely that the legislature intended to make

construction contractors on periodic payments potentially liable

under the FCA for all deviations from contract specifications.

Under such a regimen, the parties would litigate whether vague

provisions in the contract and ambiguous statements in the claim

for payment add up to a false claim. There appears to be no reason

to elaborate simple contract violations into potential claims for

compensation under the state’s False Claims Act, especially given

California’s broad fraud jurisprudence.19

C. FRAUD

The elements of common law fraud in California are “(a)

misrepresentation (false representation, concealment or

nondisclosure), (b) knowledge of falsity, (c) intent to defraud,

i.e., intent to induce reliance, (d) justifiable reliance; and (e)

resulting damage.” B.E. Witkin, Summary of California Law, 9th

Ed., Vol. 5, Torts, § 676. TBI seeks to have the fraud cause of

action dismissed on the grounds that there is no false statement

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 32 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

33

in the Payment Applications. EID seeks to have the court establish

only the first two elements of the fraud claim at this time:

misrepresentation and knowledge of falsity. 

A recent decision by the California Supreme Court guides

review of the instant fraud claim. In Robinson Helicopter Co.,

Inc. v. Dana Corp., the Court reviewed a breach of contract case

in which intentional and negligent misrepresentation claims were

also brought. 34 Cal.4th 979, 991-92 (2004). The Court explained

that ordinarily under California's public policy tort causes of

action should be disallowed where there is an available contract

remedy. “Courts will generally enforce the breach of a contractual

promise through contract law, except when the actions that

constitute the breach violate a social policy that merits the

imposition of tort remedies." Id. (internal quotations omitted).

The court concluded, however, that fraud allegations in contract

cases present a different issue since they deal with intentional

misrepresentations constituting an extra layer of blameworthiness

Id. 

Unlike FCA claims, California’s common law fraud doctrine does

not require an express representation, but fraud may be implied by

or inferred from the circumstances. Universal By-Products, Inc. v.

City of Modesto, 43 Cal.App.3d 145, 151 (1974). All that is

required is that “the misrepresentation must be a material and

knowingly false representation of fact.” Orient Handel v. United

States Fid. & Guar. Co., 192 Cal.App.3d 684, 693 (2d. Dist. 1987).

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 33 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

20 Defendant at oral argument raised the need for plaintiff

to have plead the specific instances of fraud. As a result, there

is currently pending a motion to amend the complaint which may

allow the plaintiff to specifically add the June 11th statements

to their fraud cause of action. In the meantime, the court will

discuss the June 11th statements as they were elucidated in the

summary judgment briefing and at oral argument as they appear to

raise, at a minimum, issues of disputed fact. 

34

Again, in the matter at bar, the Payment Applications

themselves do not state anything which is untrue on their face.

Nonetheless, it is possible that a reasonable jury might conclude

from the totality of the circumstances that the payment

applications implied that the work was proceeding in accordance

with the design documents.20

As noted earlier, the June 11, 2002 meeting minutes state

“California Construction Services [is] to finish Survey check of

tunnel vertical control. Findings [are] to be confirmed but

preliminary report shows they closed loop and matched TBI survey

of tunnel alignment and grade within a 1-1/4 inch.” Supp. Firstman

Dec., Ex. F. EID argues that this language is a misrepresentation

that the tunnel was only 1 1/4 inches off, while TBI argues that

the minutes clearly note only that the CCS survey confirmed the

results of the TBI survey within 1 1/4 inches, not that the actual

grade was within 1 1/4 inches of the as-planned alignment. EID

responds pointing to the McDonald deposition where the witness

testified that it was his opinion that most people in the industry

would think it was a comparison to the as-planned alignment and not

merely a comparison of two surveys. McDonald McDonald at 290-

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 34 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

21 Whether or not the testimony constitutes an admission, 

defendant can hardly claim that McDonald was unqualified to

express such an opinion, given the witness’ function relative to

the construction of the tunnel. 

35

291.21 They also point to a letter from MWH dated June 18, 2002

which notes that “California Construction Services (CCS) has not

completed reducing survey notes to verify TBI’s horizontal and

vertical alignment control survey of new tunnel. However, spot

review indicates CCS is within 0.10 foot (1 1/4") of TBI’s survey

control.” Stump Dec., Ex. C. Close reading of that language,

however, suggests that it share the same ambiguity found in the

June 11 minutes.

TBI points to contentions filed by EID in support of a

discovery motion before Judge Hollows. There EID argued “[a]t the

District’s prodding, TBI hired an independent expert, California

Construction Services (“CCS”), to measure grade and alignment in

the Tunnel after construction was well underway. The District

received only partial results from CCS’s survey during

construction, that compared CCS’ as built survey, but did not

compare either survey with the as-planned location of the Tunnel.”

Ex. 20 to Budgwig Dec. at 13:6-10 (emphasis added). 

All the above simply demonstrates that there is a triable

issue of fact regarding what the June 11, 2002 meeting minutes

meant, and a dispute about whether under the circumstances the

applications for payment were fraudulent. Thus, summary judgment

on the fraud claim is denied for both parties. 

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 35 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

22 There is also a triable issue about whether EID had

knowledge of the misalignment, but that would likely fall under the

fourth prong of “justifiable reliance.” 

36

The other question that EID would have the court resolve is

whether there was sufficient knowledge of the tunnel misalignment

to meet the second fraud prong. In conformity with the above

analysis, there is a triable issue as to whether TBI knew that

their applications for payment were fraudulent, even if they knew

that the tunnel was misaligned. As the leading text on California

law puts it, “ambiguous statements, with a possible true or false

meaning, are fraudulent only if the false meaning was intended, or

if the statement was made with either reckless indifference as to

how it would be interpreted or without any belief as to how it

would be understood.” B.E. Witkin, Summary of California Law, 9th

Ed., Vol. 5, Torts, § 704 (citing Restatement (Second) of Torts 

§ 527). Under the present record, it is clear that they are

contested issues of fact which must be resolved by the jury.22

IV.

ORDERS

For all the foregoing reasons, the court hereby ORDER as

follows:

1. Summary Judgment is DENIED to defendant with respect to

the following damages:

A. $1,538,313.00 for MWH’s extended project

management services beyond the contractual completion date;

////

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 36 of 37
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

37

B. $252,485.00 for EN2’s extended environmental

monitoring services;

C. $1,571,888.00 for HPT’s extended water treatment

services;

2. Summary Judgment is GRANTED to defendant with respect to

the $1,901.333.00 for loss of public grant funds due to delay in

completion;

3. Summary judgment is GRANTED to defendant on all of the

False Claims Act causes of action (second through eleventh) and

DENIED to plaintiff; and

4. Summary judgment is DENIED to both parties relative to the

fraud cause of action. 

IT IS SO ORDERED. 

DATED: October 5, 2005.

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

Case 2:03-cv-00949-LKK -GGH Document 295 Filed 10/07/05 Page 37 of 37