Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-02068/USCOURTS-cand-3_04-cv-02068-0/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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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA ex rel

HUANGYAN IMPORT & EXPORT CORP,

Plaintiff,

v

NATURE’S FARM PRODUCTS, INC et

al,

Defendants. /

No C-04-2068 VRW

ORDER

This is a suit by the United States (the qui tam relator

has been dismissed) under the False Claims Act (FCA), 31 USC § 3729

et seq, and the common law against an importer of canned mushrooms

and its affiliates. Following various settlements, only the

importer, Nature’s Farm Products (NFP) and its officers

(collectively, the “NFP defendants”) remain in this suit. The

United States alleges that defendants conspired to and did evade

customs duties on their imports by falsifying their products’

country of origin. The NFP defendants move pursuant to FRCP

12(b)(6) to dismiss the FCA causes of action for failure to state a

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claim upon which relief can be granted, advancing purely legal

arguments about the reach of the FCA. Doc #13 (motion to dismiss

FCA conspiracy claim); Doc #22 (motion to dismiss FCA substantive

claim). The court sua sponte raised the question of its subject

matter jurisdiction in light of United States v Universal Fruits &

Vegetables, 370 F3d 829 (9th Cir 2004). For the reasons that

follow, the court concludes that it has jurisdiction over this

case, GRANTS the NFP defendants’ motion to dismiss the FCA

conspiracy claim and DENIES the NFP defendants’ motion to dismiss

the FCA substantive claim. Finding that this order resolves

controlling questions of law as to which there is substantial

ground for difference of opinion, and finding that an immediate

appeal from this order may materially advance the ultimate

termination of this litigation, the court CERTIFIES this order for

interlocutory appeal under 28 USC § 1292(b).

I

As the motions before the court pose pure questions of

statutory interpretation, only the barest recitation of the

allegations in the United States’ extremely detailed complaint is

necessary. “On a motion to dismiss, all well-pleaded allegations

of material fact are taken as true and construed in a light most

favorable to the non-moving party.” Wyler Summit Partnership v

Turner Broadcasting System, Inc, 135 F3d 658, 661 (9th Cir 1998)

(citing Parks School of Business, Inc v Symington, 51 F3d 1480,

1484 (9th Cir 1995)). The operative complaint in this case was

filed by the United States in the Southern District of New York on

October 10, 2003; the United States simultaneously filed a motion

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(which was granted) to dismiss the relator under the FCA’s public

disclosure bar, see 31 USC § 3730(e)(4)(A). Apparently due to a

docketing error in the Southern District of New York, the file sent

to this court upon transfer under 28 USC § 1404(a) did not include

the United States’ complaint. To correct the record, the parties

have stipulated to the filing of the complaint in this court’s

docket as Doc #32. Accordingly, what follows is drawn from that

complaint (the “complaint”), taking its allegations as true.

Defendant NFP is an importer of, inter alia, canned

mushrooms. The mushrooms come from Chile, and in late 1998, the

International Trade Administration, Department of Commerce (ITA)

determined that mushrooms exported from Chile by NFP’s Chilean

affiliate were being sold at less than fair value (“dumping” in the

parlance). ITA imposed an antidumping duty of 148.51% on NFP’s

mushrooms. See Notice of Final Determination of Sales at Less Than

Fair Value: Certain Preserved Mushrooms from Chile, 63 Fed Reg

56,613 (ITA Oct 22, 1998). NFP officers Dennis Choi and Peter

Pizzo developed a scheme to circumvent the antidumping duties: 

They would ship large drums of “brined” (salt-preserved) mushrooms

from Chile to Canada; in Canada, with the assistance of defendant

Ravine Foods, the mushrooms would be de-brined and packaged in cans

for retail sale; these cans -- labeled as products of Canada and so

designated in paperwork prepared by defendant Aliments Heritage --

would be imported from Canada into the United States duty-free

pursuant to the North American Free Trade Agreement. Defendant

Bank of China, New York Branch (BOCNY) was NFP’s commercial bank

and was aware of and provided financing for the scheme.

Defendants executed the scheme from late 1998 to midCase 3:04-cv-02068-VRW Document 44 Filed 05/03/05 Page 3 of 25
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2000. As each shipment of canned mushrooms was presented at the

Canada-United States border, defendants submitted to Customs a

Customs Form 7501 that designated the “country of origin” as Canada

(or the provinces of Quebec or Ontario), and declared that no duty

was owed. Along with the false Forms 7501, defendants submitted

false certificates of origin prepared by Aliments Heritage that

stated that the mushrooms were products of Canada. In total,

between December 9, 1998, and June 9, 2000, NFP imported

approximately 150 falsely labeled shipments of Chilean mushrooms

with a declared value of approximately $4.8 million, thus evading

antidumping duties of approximately $7.8 million.

A competitor of NFP, relator Huangyan Import & Export

(“Huangyan”), uncovered evidence of the scheme during discovery in

an apparently unrelated civil lawsuit against NFP. Huangyan filed

this qui tam suit against defendants in the Southern District of

New York in 2000; the suit was held under seal until 2003 while the

United States decided whether to intervene. As noted above, the

United States did intervene, filed its own complaint and

successfully dismissed the relator. After the United States

settled with defendant BOCNY, the case was transferred pursuant to

28 USC § 1404(a) to this district (in which NFP has an office). At

this point, the United States has settled its claims against all

but the NFP defendants.

The complaint states four claims: (1) a violation of 31

USC § 3729(a)(7) (“§ 3729(a)(7)”) the substantive FCA provision for

so-called “reverse” false claims (which arise when a party avoids

an obligation to pay the government, in contrast to claims that

seek fraudulently to obtain money or property from the government);

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(2) a violation of 31 USC § 3729(a)(3) (“§ 3729(a)(3)”), the FCA’s

provision governing conspiracies to defraud the government; (3) a

claim for common law fraud; and (4) a claim for unjust enrichment. 

The NFP defendants move pursuant to FRCP 12(b)(6) to dismiss counts

(1) and (2) for failure to state a claim upon which relief can be

granted.

II

The court must first consider its own subject matter

jurisdiction. See Steel Co v Citizens for a Better Environment,

523 US 83, 94 (1998). Generally, the district courts have federal

question jurisdiction under 28 USC § 1331 over suits under the FCA. 

But some matters are carved out from the district courts’ original

jurisdiction; one such carve-out is found in 28 USC § 1340, which

provides that “[t]he district courts shall have original

jurisdiction of any civil action arising under any Act of Congress

providing for * * * revenue from imports * * * except matters

within the jurisdiction of the Court of International Trade.” One

statute providing for the exclusive jurisdiction of the Court of

International Trade is 28 USC § 1582, which vests exclusive

jurisdiction in that court of “any civil action which arises out of

an import transaction and which is commenced by the United States *

* * to recover customs duties.”

The Ninth Circuit has recently held that an FCA suit

brought by the United States in the first instance to recover

antidumping duties is within the exclusive jurisdiction of the

Court of International Trade because (1) it is a civil action, (2)

it is “commenced by the United States,” (3) the case “arises out of

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an import transaction,” and (4) the recovery sought constitutes

customs duties. United States v Universal Fruits & Vegetables

Corp, 370 F3d 829 (9th Cir 2004). Universal Fruits is

indistinguishable from the case at bar in all but one respect:

Universal Fruits was brought by the United States in the first

instance, while the case at bar was originally filed by a relator. 

This distinction may make a difference, because a suit brought by a

relator (who was dismissed) may not be “commenced by the United

States” -- thus vesting jurisdiction in this court, not the Court

of International Trade. Accordingly, the court must decide whether

a FCA suit in which the United States has intervened, filed a

complaint and successfully dismissed the qui tam relator is a suit

“commenced by the United States” within the meaning of 28 USC §

1582 and Universal Fruits. The court put precisely this question

to the parties in asking for supplemental briefing, Doc #31, which

the parties have provided, Doc #38 (United States), Doc #39 (NFP

defendants).

The question here is difficult because the case at bar

lies between two established markers: On the one hand, in

Universal Fruits, the Ninth Circuit held that a suit brought in the

first instance by the United States is “commenced by the United

States” within the meaning of 28 USC § 1582. On the other hand, in

United States ex rel Fenton v Allflex USA, Inc, 989 F Supp 259, 263

(CIT 1997), the Court of International Trade held that “a qui tam

suit is ‘commenced by’ the private actor, not the Government.” But

Fenton is arguably distinguishable from the case at bar because in

Fenton the United States had not intervened and the relator was

prosecuting the suit; here, by contrast, the United States

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successfully dismissed the relator (Huangyan) under the public

disclosure bar of 31 USC § 3730(e)(4)(A), and filed its own

complaint. Because (1) the public disclosure bar of §

3730(e)(4)(A) utterly divests courts of jurisdiction over qui tam

actions brought on the basis of publicly disclosed information, (2)

the United States’ complaint supersedes the relator’s and (3) the

United States is not bound by any action of the relator, see 31 USC

§ 3730(c)(1), one could fairly argue that the relator’s

participation was a nullity; that the relator “commenced” this suit

only in the sense of docketing the first paper; and that for all

practical purposes, the United States “commenced” this suit with

its complaint.

Against this argument, the United States offers three

compelling arguments resting on a detailed textual analysis of the

FCA and the Federal Rules of Civil Procedure. First, “a civil

action is commenced by filing a complaint with the court.” FRCP 3

(emphasis added). In some sense, this is the end of the matter: 

28 USC § 1582 uses the word “commenced” and FRCP 3 defines

“commence.” Common sense suggests that an activity (e g, a

lawsuit) can only be commenced once, and the relator’s filing of

its complaint in the Southern District of New York was that

commencement.

Second, within the qui tam provisions of the FCA, 31 USC

§ 3730, there is a dichotomy between “private persons” (i e,

relators) and “the Government”: The former may “bring a civil

action” that is “brought in the name of the Government”; in the

FCA, the relator is referred to as “the person bringing the action”

or “the person intiating the action.” The United States, by

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contrast, “may elect to intervene and proceed with the action,” and

by intervening it assumes “the primary responsibility for

prosecuting the action.” Among the synonyms for “begin,” Roget’s

Thesaurus lists “commence,” “bring” and “initiate.” (“Commence”

and “proceed” are also both synonyms for “arise,” but this cluster,

which also includes “derive” and “result,” seems to be about

genesis -- “arise from,” “derive from,” “proceed from,” “commence

from” and so on.) And of course, one cannot “intervene” in

something that has not previously commenced. In sum, the relator

commences the suit; whatever the United States may later do, it

does not also commence the suit.

Third, the government points out that there may be

significant practical problems with an interpretation that the

United States “commences” an FCA suit by dismissing the relator and

filing its own complaint. For one thing, such an interpretation

would throw into doubt other areas of law that depend on a certain

date of commencement, such as the statute of limitations. 

Moreover, dismissal of the relator would presumably trigger a

mandatory transfer of the case to the Court of International Trade

(an inconvenient procedure at best); but the dismissal of the

relator would be an interlocutory order subject to reconsideration

-- and if reversed, the case would (presumably) be retransferred to

the district court. This state of affairs could invite the

mischief of “jurisdictional ping-pong” that has on occasion

required Supreme Court intervention. See Christianson v Colt

Industries Operating Group, 486 US 800, 818 (1988). These conundra

do not, on their own, compel the conclusion that a district court

has jurisdiction over a qui tam FCA suit like this from start to

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finish, but they lend credence to the notion that Congress did not

intend commencement to be a fluid concept.

In sum, the United States has the better of the argument

on several different levels: An FCA qui tam action in which the

relator has been dismissed and the United States has filed a

complaint is not “commenced” by the United States within the

meaning of 28 USC § 1582. Accordingly, the court concludes that

the Court of International Trade would not have subject matter

jurisdiction over this action. Therefore, this court has subject

matter jurisdiction and proceeds to consider the merits.

III

In turning to the substantive questions raised in the NFP

defendants’ motions to dismiss, an overview of the FCA’s

legislative history is helpful. The FCA was originally enacted

during the Civil War and later codified at Rev Stat § 3490 (civil

penalties for false claims), which incorporated by reference the

substantive offenses of Rev Stat § 5438 (criminal penalties for

false claims). Rev Stat § 5438 provided that:

any person not in the military * * * who shall

make or cause to be made, or present or cause

to be presented, for payment or approval, * * *

any claim upon or against the Government of the

United States * * * knowing such claim to be

false, * * * or who enters into any agreement,

combination, or conspiracy to defraud the

Government of the United States, or any

department or officer thereof, by obtaining or

aiding to obtain the payment or allowance of

any false or fraudulent claim * * * shall [be

liable to the United States].

Aside from recodifications, there have been only two amendments

relevant to this case: First, the conspiracy provision was amended

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by Pub L No 97-258, 96 Stat 978 (1982), to provide simply that

“[a]ny person who * * * (3) conspires to defraud the Government by

getting a false or fraudulent claim allowed or paid” is liable to

the United States. 31 USC § 3729(a). The meaning of “claim” is

further clarified in 31 USC § 3729(c).

The second amendment to the FCA was in response to a

perceived lacuna in the statute: As written, it covered only false

claims (i e, affirmative demands on the treasury); it did not

clearly reach false statements that avoided an obligation to make a

payment to the United States. See United States v Bornstein, 423

US 303, 309 n4 (1976) (suggesting in dictum that the pre-1986

version of FCA did not reach reverse false claims); United States v

Howell, 318 F2d 162 (1963) (holding that the pre-1986 version of

FCA did not reach reverse false claims); False Claims Amendments

Act of 1986, S Rep No 345, 99th Cong, 2d Sess 15 (1986), 1986

USCCAN 5266, 5280 (discussing Department of Justice testimony

before Congress that “recent court rulings had produced an

ambiguity as to whether * * * ‘reverse false claims’ were covered

by the False Claims Act”). Such claims are “reverse” false claims,

because the financial obligation that is the subject of the fraud

flows in the opposite of the usual direction.

To address this gap, Congress amended the FCA in 1986,

see Pub L No 99-562 § 2, 100 Stat 3153 (1986), by adding subsection

(7) to 31 USC § 3729(a), which imposes liability on any person who

“knowingly makes * * * a false record or statement to conceal,

avoid, or decrease an obligation to pay or transmit money or

property to the Government.” 31 USC § 3729(a)(7).

/

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A

With this legislative history in mind, the court first

considers the NFP defendants’ motion to dismiss the substantive FCA

claim under § 3729(a)(7). Mot Dismiss (Doc #22). The NFP

defendants contend that “a claim under 31 USC § 3729(a)(7) for

avoidance of an obligation to pay money to the government[] must be

based on a present, existing legal duty to pay the government a

fixed sum of money when the alleged false statement is made. * * *

The customs duties, including anti-dumping duties, attach at the

time goods (such as mushrooms) are trucked over the border from

Canada [which] is at the same time that the alleged false

statements or records, namely Customs Form 7501 and the

Certificates of Origin were submitted to the United States Customs

Service.” Def Mot (Doc #22) at 2:4-12. In short, the NFP

defendants argue that the “obligation” of § 3729(a)(7) must

preexist the “false record or statement” of that subsection.

There being no on-point authority from the Ninth Circuit,

the NFP defendants cite out-of-circuit authority for their

argument: United States ex rel Bain v Georgia Gulf Corp, 386 F3d

648 (5th Cir 2004) (“Bain”); American Textile Manufacturers

Institute, Inc v The Limited, Inc, 190 F3d 729 (6th Cir 1999)

(“ATMI”); and United States v Q International Courier, 131 F3d 770

(8th Cir 1997) (“Quick”). The NFP defendants can indeed point to

language in each of these opinions that, as a literal matter,

supports their position that the “obligation” of § 3729(a)(7) must

preexist the “false record or statement. But their argument is

sophistry: Each of the cases is factually distinguishable and,

more importantly, the reasoning of Bain, ATMI and Quick does not

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support the result that the NFP defendants would have the court

reach in this case.

Quick, the oldest of the three cases, concerned a mail

courier engaged in a remailing scheme: The courier (Quick) would

ship mail in bulk to Barbados, where postage would be paid to

Barbados to deliver the letters to destinations in the United

States. Because Barbados’ international postal rates were

significantly lower than United States domestic postal rates, the

scheme saved postage costs for Quick’s customers. Because the

United States Postal Service typically delivers inbound

international mail for free under the Universal Postal Convention

(in reciprocity with the national postal carriers in foreign

states), the Postal Service was not paid for domestic delivery of

Quick’s letters.

The Eighth Circuit began its discussion of the FCA by

offering a holding couched in temporal terms: “To recover [for a

reverse false claim] under the False Claims Act, we believe that

the United States must demonstrate that it was owed a specific,

legal obligation at the time that the alleged false record or

statement was made, used, or caused to made or used.” Quick, 131

F3d at 773. The broad strokes of this support the NFP defendants’

position. But the court went on to explain its holding in terms of

the source of the obligation:

The obligation cannot be merely a potential

liability; instead, in order to be subject to

the penalties of the False Claims Act, a

defendant must have had a present duty to pay

money or property that was created by a

statute, regulation, contract, judgment, or

acknowledgment of indebtedness

Id.

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From here, the court’s discussion makes clear that the

emphasis is not so much on the timing of the obligation as on its

source. Consistent with this focus, the court worked through the

statutory and regulatory sources that might have imposed an

obligation on Quick to pay domestic postage as part of its

remailing scheme. Finding no source for the “obligation,” the

Eighth Circuit affirmed the district court’s grant of summary

judgment. The situation here is rather different, for the United

States has identified the source of an obligation to pay duties on

certain Chilean mushrooms: the ITA’s final order (cited above) and

the attendant regulatory framework authorizing and implementing the

assessment and collection of such antidumping duties.

The Quick court acknowledged that a certain postal

regulation might authorize the assessment of a penalty against

Quick for encroaching on the Postal Service’s statutory monopoly,

but promptly explained that “[a] potential penalty, on its own,

does not create a common-law debt. A debt, and thus an obligation

under the meaning of the False Claims Act, must be for a fixed sum

that is immediately due. [The] regulation merely provides a range

of penalties that might be assessed; it does not create an

immediate duty to pay a specific sum.” Id at 774. This court

agrees with the Eighth Circuit (and, as will shortly be seen, the

Fifth and Sixth Circuits in Bain and ATMI, respectively) that

potential obligations -- fines, penalties and the like -- that are

contingent upon the exercise of some discretion or intervening act

by the government are not properly the subject of a suit under the

FCA.

The existing debts / contingent penalties dichotomy

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frames -- but does not answer -- the relevant question in this

case: On which side of the line is the customs duty allegedly owed

by the NFP defendants? The United States contends that the legal

obligation to pay the antidumping duty existed upon the ITA’s

issuance of its final order respecting NFP’s Chilean mushroom

imports, and that “customs officials exercise no discretion at all

with respect to antidumping duties, but simply apply the 148.51%

established by the [ITA final order] to determine the duties owed. 

Pl Opp (Doc #23) at 9:22-24 (citing United States v Yuchius

Morality Co, 2002 WL 31357050, *3 (CIT)). This argument squarely

places the duties at issue in the “existing debts” category --

albeit a subcategory in which payment is contingent upon

importation. The NFP defendants do little to dispute the

determinacy with which the Customs Service operates; they respond

that the duties at issue belong in the “contingent penalties”

category because of the contingencies of (1) actual importation and

(2) determination by the Customs Service that the mushrooms are in

fact covered by the ITA final order. See Def Reply (Doc #25) at

5:15-6:2. The latter is a relevant contingency only if the Customs

Service has discretion in designating the origin of an import. But

there is no suggestion here that the Customs Service had such

discretion. Importation is a contingency in the control of the

importer; there is no discretion to be found in the hands of some

government official.

This distinction is borne out in the two other courts of

appeals decisions relied on by the NFP defendants. Bain concerned

alleged violations of state and federal air quality laws by an

industrial chemical manufacturer. These violations -- which would

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have been known to regulatory authorities had the manufacturer not

falsified its pollutant reports -- were sufficient to allow those

regulatory authorities to assess fines and penalties against the

manufacturer. Relator Bain argued that a potential fine or

monetary penalty should be interpreted as an “obligation” within

the meaning of § 3729(a)(7). 386 F3d at 653-56. The Fifth Circuit

rejected this argument:

[T]he reverse false claims act does not extend

to the potential or contingent obligations to

pay the government fines or penalties which

have not been levied or assessed (and as to

which no formal proceedings to do so have been

instituted) and which do not arise out of an

economic relationship between the government

and the defendant * * *. * * * [Defendant], in

common with all others, was obligated to obey

the law, including the Clean Air Act and the

regulations pursuant thereto, and if it did not

it could be subjected (as alleged in the

amended complaint) to “statutory fines and

penalties”, but the mere contingent potential

that such fines or penalties might be (but had

not been) sought and imposed does not

constitute “an obligation to pay or transmit

money or property to the Government” within the

meaning of section 3729(a)(7).

Id at 657-58.

Compared to Quick and Bain, the putative obligations in

ATMI are in most respects equally distinguishable from the

obligations in the instant suit. In that case, ATMI contended that

the defendant clothing importers “engaged in a pattern or practice

of trade pursuant to which articles of apparel produced in the

People’s Republic of China [were] transhipped to Hong Kong or

Macau; and [were] knowingly represented to be the products of Hong

Kong or Macau in official entry documents [submitted to the Customs

Service] by or on behalf of [the] defendants.” ATMI, 190 F3d at

731. Unlike the case at bar, there were no antidumping duties at

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issue in ATMI, but ATMI did appeal to a number of statutes

authorizing penalties for the defendants’ alleged practices as

establishing an “obligation” under § 3729(a)(7). See ATMI, 190 F3d

at 732 (citing 18 USC § 545 (prohibiting smuggling and false

customs documents); 19 USC § 1595a(b) (penalizing importation of

goods “contrary to law”); 19 USC § 1592 (penalizing false

statements in connection with importation); 19 USC § 1623 (relating

to customs bonds); 19 USC § 1304(h) (imposing a 10% duty on goods

bearing false country-of-origin markings); 15 USC §§ 45(n), 70a(a),

70b(b)(4) (deeming misbranding of textiles to be unfair

competition)).

The ATMI court adopted the reasoning of the Eighth

Circuit in Quick. 190 F3d at 736. Based on this, it was easy to

reject most of the putative obligations as “rely[ing] on the theory

of contingent obligations” because they depended on the exercise of

governmental discretion to seek a fine or penalty, or, in the case

of the bonding requirement, were contingent upon the government

requiring a bond in the first instance, which it had not. Id at

741. Indeed, the provision penalizing the making of false

statements to the Customs Service, 19 USC § 1592, seems an

especially inappropriate basis for a suit under the FCA because not

only is the penalty contingent on government enforcement, but also

liability only arises because of the false statement itself.

For the ATMI court, the allegation that “the defendants

filed false documents to conceal liability under 19 USC § 1304(h)

present[ed] the most difficulty, as it involves a provision

applying a ten percent ad valorem marking duty to goods having

false country-of-origin markings.” 190 F3d at 741. In other

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words, the United States will permit the importation of mismarked

goods (subject to other penalties, perhaps) upon payment of an

additional 10% ad valorem duty (the “mismarking duty”). This seems

at first blush legally indistinguishable from the case at bar: In

ATMI the defendants allegedly lied about the country of origin to

conceal their obligation to pay a readily computable sum (i e, 10%

of the value of the imported textiles); here, the NFP defendants

allegedly lied about the country of origin to conceal their

obligation to pay a readily computable sum (i e, 148.51% of the

value of the imported mushrooms). The NFP defendants correctly

point out that the ATMI court adopted their view in rejecting the

position that the mismarking duty is an “obligation” within the

meaning of § 3729(a)(7).

The court is not entirely confident that it comprehends

the Sixth Circuit’s reasoning in ATMI, but it seems to rest on

three related aspects of the mismarking duty: First, the ATMI

court noted that the mismarking duty applies “when a defendant

engages in conduct that the statute defines as wrongful.” 190 F3d

at 741 (emphasis added). Second, ATMI depends very heavily on a

Federal Circuit case interpreting the mismarking duty provision to

require a mens rea. See ATMI, 190 F3d at 741-42 (quoting Pentax

Corp v Robison, 125 F3d 1457, 1463 (Fed Cir 1997). Third, ATMI

pointedly quotes Pentax’s note that mismarking duties arise not at

the time of mismarking, but rather upon the would-be importer’s

subsequent “failure to export, destroy, or remark the articles in

accordance with [the law].” ATMI 190 F3d at 741-42 (quoting

Pentax, 125 F3d at 1463).

The court is unsure why the labeling of conduct as

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“wrongful” or attaching a mens rea requirement are relevant to

whether a customs duty can be the subject of an FCA claim, but in

any event, neither aspect is present for the antidumping duties

here at issue: The antidumping duty is not assessed because

importation is “wrongful”; it is simply the price of bringing

certain products into the United States. As for the mens rea

requirement, there is apparently no analogue to Pentax in the

antidumping duty context, and there is no independent suggestion by

the parties that a mens rea requirement attaches to the antidumping

duties. Finally, Pentax’s comment about the importer’s “failure to

export, destroy, or remark” has no parallel here. The importer of

goods subject to antidumping duties has no opportunity to remedy

his false statement in the way that an importer of mismarked goods

can subsequently re-mark the goods. Indeed, there is no way at all

to “cure” the fact that the mushrooms come from Chile; a mismarked

product can be re-marked, but Chilean mushrooms will always be

Chilean. Facing such distinctions, the court will not follow ATMI

on this issue.

This leaves the court with the simple dichotomy

identified above: There are obligations that are certain (or

nondiscretionary and readily computable) and there are fines and

penalties contingent on governmental discretion, and the putative

obligation in this case falls in the former category. Accordingly,

because the NFP defendants have failed to explain what was

contingent or discretionary about the assessment of the antidumping

duties alleged in the complaint, their motion to dismiss the first

claim (Doc #22) is DENIED.

/

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B

The court next takes up the NFP defendants’ motion to

dismiss the FCA conspiracy claim under§ 3729(a)(3). Mot Dismiss

(Doc #13). Section 3729(a)(3) holds liable persons who “conspire

to defraud the Government by getting a false or fraudulent claim

allowed or paid.” The NFP defendants’ argument is a simple

syllogism: By its express terms, § 3729(a)(3) does not reach

conspiracies to make reverse false claims. The complaint describes

a reverse false claim conspiracy -- specifically, a plan to avoid

paying customs duties. Ergo § 3729(a)(3) does not reach the

conspiracy described in the complaint.

Admittedly, this creates an unusual lack of symmetry in

the FCA’s structure: Normal and reverse false claims are equally

punishable as a substantive matter, but only conspiracies directed

at the former, not the latter, are punishable. But the NFP

defendants’ logic is unassailable. As this court has previously

explained in interpreting another provision of the FCA:

Courts engaged in statutory interpretation

should presume that “if the language of a

statute is clear and there is no ambiguity,

then there is no need to ‘interpret’ the

statute by resorting to legislative history.” 

Church of Scientology v United States Dep’t of

Justice, 612 F2d 417, 421 (9th Cir 1979). The

reasoning behind this so-called “plain meaning

rule” is that “in the vast majority of its

legislation Congress means what it says and

thus the statutory language is normally the

best evidence of congressional intent.” Id.

United States ex rel Costa v Baker & Taylor, Inc, 1998 WL 230979,

*7 (ND Cal) (Walker, J). The requirement that the conspiracy be

directed at “getting a false or fraudulent claim allowed or paid,”

§ 3729(a)(3) is unambiguous: Its plain meaning requires that the

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conspirators seek to be “paid” or to have a claim on the treasury

“allowed.” That is not what allegedly happened here; the alleged

conspirators in this case wanted to avoid paying money to the

United States.

Nor is the definition of “claim” in § 3729(c) any help to

the United States. That section -- which merely expands the scope

of “claim” to include claims made on agents or intermediaries of

the United States -- does nothing to sweep reverse false claims

within the meaning of “claim”:

For purposes of this section, “claim” includes

any request or demand, whether under a contract

or otherwise, for money or property which is

made to a contractor, grantee, or other

recipient if the United States Government

provides any portion of the money or property

which is requested or demanded, or if the

Government will reimburse such contractor,

grantee, or other recipient for any portion of

the money or property which is requested or

demanded.

31 USC § 3729(c). Thus, neither in the pertinent subsection

itself, nor in the statute’s definitions is there any way to

shoehorn reverse false claim conspiracies into § 3729(a)(3).

Moreover, the court is mindful that (1) the Ninth Circuit

interpreted the pre-1986 FCA not to reach reverse false claims, see

Howell, 318 F2d 162; (2) the conspiracy provision, § 3729(a)(3),

has not been meaningfully altered since Howell; and (3) the

conspiracy provision was untouched by the 1986 amendments made by a

Congress quite aware of the distinction between normal and reverse

false claims. In that light, Howell is arguably still good law

with respect to § 3729(a)(3), and this court is obliged to conclude

that § 3729(a)(3) does not reach conspiracies to make reverse false

claims. This interpretation is in accord with the only other

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federal case squarely to address this issue. See United States ex

rel Atkinson v Pennsylvania Shipbuilding Co, 255 F Supp 2d 351,

413-14 (ED Pa 2002).

The United States’s opposition (Doc #19) largely misses

the point of the NFP defendants’ motion regarding the conspiracy

claim. For example, the United States contends that the “obvious

problem with the argument of the NFP Defendants that a conspiracy

to submit a reverse false claim requires ‘actual payment’ is that

reverse false claims, by their nature, do not involve an ‘actual

payment.’” Pl Opp (Doc #19) at 9:26-10:1 (emphasis added). But

the NFP defendants’ argument is that § 3729(a)(3) requires actual

payment (or a demand seeking actual payment), and thus does not

reach reverse false claims -- which, indeed, do not involve actual

payment. Moreover, the United States pays disturbingly little

attention to the wording of the subsections of § 3729(a) when it

argues:

The NFP Defendants also argue that the

definition of “claim” in § 3729(c) precludes

liability for anything other than a demand for

money or property. Yet if this argument were

true, there would never be any liability for

reverse false claims, which by their nature do

not involve a demand for money or property. By

this interpretation, “reverse false claims” are

not “claims” at all. The NFP Defendants cannot

interpret one provision of the False Claims Act

(§ 3729(c)) to render a separate provision (§

3729(a)(7)) a nullity.

Pl Opp (Doc #19) at 15:3-8. The argument is that subsection (a)(7)

-- the provision of the FCA that indisputably reaches reverse false

claims -- relies on “claim” including reverse false claims, and

therefore “claim” elsewhere in the statute must include reverse

false claims. But the premise of the argument is demonstrably

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false: Nowhere in its thirty-two words does subsection (a)(7)

refer to “claims.” The government could not have put it better: 

“‘reverse false claims’ are not ‘claims’ at all.” Pl Opp (Doc #19)

at 15:6-7.

The United States also spends a great deal of effort

attempting to persuade the court that failing to impose liability

on a reverse false claim conspiracy is at odds with its drafters’

intent. The resort to legislative history is inappropriate and

unavailing. As an initial matter, “to disregard the plain meaning

of [a] statute,” a court must first “conclude that the result [of a

plain meaning reading” is either absurd or would lead to internal

inconsistency.” Coronado-Durazo v INS, 123 F3d 1322 (9th Cir 1997)

(citing United States v Turkette, 452 US 576, 580 (1981)). While

the court is sympathetic to the United States’ commonsense point

that there is very little difference in economic terms between

conspiring to make a false claim on the United States and

conspiring to avoid paying money to the United States, this result

is not self-contradictory and it is hardly “absurd”. After all,

the FCA did not cover reverse claims at all for the first 123 years

of its existence; while that might have been bad policy, surely it

was not absurd. Even if resort to legislative history were

permissible here, the United States appeals to Congress’ intent in

enacting § 3729(a)(7) -- which is not at issue here. The

legislative history of subsection (a)(7) can hardly change the

meaning of the previously enacted subsection (a)(3). The short of

it is that if Congress in 1986 wanted to include reverse false

claim conspiracies in the FCA, it failed to enact any statutory

language to that effect. It is not up to this court to do what

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Congress could have done but did not.

Finally, the United States cites two district court cases

that suggest that reverse false claim conspiracies are actionable

under § 3729(a)(3). See United States ex rel Capella v Norden

Systems, Inc, 2000 WL 1336487, *11 (D Conn); United States ex rel S

Prawer & Co v Verrill & Dana, 962 F Supp 206, 208 n2 (D Me 1997). 

But those cases’ discussions about reverse false claim conspiracies

are dicta (and unconsidered dicta at that). The court is far more

persuaded by the foregoing analysis and the analysis in Atkinson, a

case that -- in its holding, not its dictum -- addressed the

question presented here.

Accordingly, the court concludes that 31 USC § 3729(a)(3)

does not reach conspiracies to make reverse false claims. As the

allegations of the complaint are now, and always have been,

exclusively directed toward reverse false claims, the NFP

defendants’ motion to dismiss the second claim under 31 USC §

3729(a)(3) (Doc #13) is GRANTED. Futhermore, because there has

been no suggestion that defendants conspired to make a normal false

claim on the United States, amendment of the complaint would be

futile. DCD Programs, Ltd v Leighton, 833 F2d 183, 186 (9th Cir

1987). Accordingly, the United States is DENIED leave to amend

this claim.

III

This order resolves three pure questions of law on which

there is no on-point precedent from the Ninth Circuit. As the

foregoing discussion suggests, there are reasonable grounds for

disagreement on each of these three issues. Indeed, the court

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candidly acknowledges its partial disagreement with the Sixth

Circuit’s decision in ATMI, so reasonable jurists might not reach

the conclusions that has this court. These issues go to the heart

of the case: Depending on how the three issues are resolved, the

United States might have two FCA claims, one FCA claim, no claim at

all or might be in the wrong court altogether. This order itself

is a “split decision” on the merits issues. Furthermore, the

stakes are large -- after trebling and civil penalties, there are

tens of millions of dollars in controversy. And while the United

States maintains that it will require relatively little further

discovery, the NFP defendants represent that they anticipate taking

discovery outside of the United States, a sometimes onerous task.

For these reasons, the court is of the opinion that

certification of this order for interlocutory appeal under 28 USC §

1292(b) is appropriate: It involves three controlling questions of

law as to which there are substantial grounds for difference of

opinion, and immediate appellate review of those questions may

materially advance the termination of the litigation (whether by

dismissal, compromise or transfer for want of jurisdiction). 

Accordingly, this order is CERTIFIED for interlocutory appeal. As

this order resolves issues against both parties, either party may

apply to the Court of Appeals for the Ninth Circuit to accept

certification. Should the Ninth Circuit accept certification, the

parties shall confer and within 30 days submit to the court a

proposal for whether this action should be stayed pursuant to the

proviso of 28 USC § 1292(b). In the event the Ninth Circuit

declines to accept certification, the parties are directed to so

inform the court promptly and request a case management conference.

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IV

In sum, the court GRANTS the NFP defendants’ motion to

dismiss the FCA conspiracy claim (Doc #13) and DENIES the NFP

defendants’ motion to dismiss the FCA substantive claim (Doc #22). 

This order is CERTIFIED for interlocutory appeal pursuant to 28 USC

§ 1292(b).

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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