### IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 14

- 50704

United States of America, ex rel, GEORGE GAGE,

Plaintiff

- Appellant

v. DAVIS S.R. AVIATION, L.L.C., doing business as Challenger Spares and Support; CHALLENGER REPAIR GROUP, L.L.C.; ORION AIR GROUP, L.L.C.; BOMBARDIER, INCORPORATED; NORTHROP GRUMMAN CORPORATION; STEVE DAVIS, Ind ividually; NORTHRUP GRUMMAN DEFENSE MISSION SYSTEMS; NORTHROP GRUMMAN SPACE AND MISSION SYSTEMS, INCORPORATED,

Defendants

- Appellees

Appeal from the United States District Court for the Western District of Texas USDC No. 1:12

- CV

- 904

Before BARKSDALE, SOUTHWICK, and HIGGINSON, Circuit Judges

. S TEPHEN A. HIGGINSON , Circuit Judge : * The False Claims Act is a potent remedial statute

. As a counterweight to the s tatute’s power and as a shield against fishing expeditions, FCA suits are subject to the screening function of Federal Rule of Civil Procedure 9(b).

* Pursuant to 5 TH C IR . R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5 TH C IR . R. 47.5.4. United States Court of Appeals Fifth Circuit 

### FILED July 14, 2015 Lyle W. Cayce Clerk Case: 14-50704 Document: 00513115411 Page: 1 Date Filed: 07/14/2015No. 14

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2 R elator George Gage raises allegations about the maintenance and operation of military aircraft in a war z one ; h owever, despite repeated opportunities , he has not complied with the FCA’s pleading requirements. For that reason, we AFFIRM the district court’s dismissal of his complaint. FACTS AND PROCEEDINGS The following allegations come from Gage’s Third Amended Complaint (“TAC”). In 2009, Northrop Gru m man contracted with the United States Air Force (“USAF”) to provide the Battlefield Airborne Communication Node (“BACN”)

— a system critical to interservice troop communication

— and to operate three Bombardier aircr f aft containing the BACN. Orion Air Group, L.L.C., in turn, subcontracted with Northrop to operate and maintain the BACN aircraft. Gage alleges that the critical nature of the BACN missions and the heavy use of the aircraft required Orion to acquir e replacement parts, many of which w ere not readily available from o riginal e quipment

m anufacturers. One of the sources to which Orion looked was CSS. 1 In April 2008, CSS, assisted by Bombardier, acquired a civilian Bombardier aircraft ( Serial Number 9211 ) that had crash landed in Canada (the “9211 Aircraft”)

. Gage alleges that parts from the 9211 A ircraft, including Rolls Royce engines and a Variable Frequency Generator (“VFG”), were defective and could present a potential safety risk. Indeed, many part s we re listed as “ suspect ” on a Worldw ide Communication issued by Rolls Royce following the crash

. Gage alleges that CSS sold parts from the 9211 A ircraft to Orion, wh ich installed them on BACN aircraft. On June 28, 2010, an Orion

operated BACN aircraft containing the 9211 Aircraft’s VFG suffered a “catastrophic incident” over Afghanistan after the VFG exploded. Gage alleges

1 In this opinion, “CSS” refers to defendants Davis S.R. Aviation, L.L.C. d/b/a Challenger Spares and Support; Challenger Repair Group, L.L.C. , and Steve Davis, i ndividually. Case: 14-50704 Document: 00513115411 Page: 2 Date Filed: 07/14/2015No. 14

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3 that defendants were part of a scheme to defraud the government whereby CSS and Bombardier supplied non

- conforming parts to Orion, who installed them on aircraft as Northrop’s subcontractor in violation of contractual or regulatory requirements

. Relator Gage’s involvement in this case stems from his participation in a prior l awsuit that also arose from the crash of the 9211 Aircraft

. In May 2010, CSS sued Rolls Royce in the Western District of Texas , alleging that Rolls Royce made false statements in the Worldwide Communication about the condition of the engines acquired by CSS in an attempt to prevent CSS from selling the engines on the open market

. CSS alleged that it was damaged b ecause it was forced to lease the engines to Orion for less than CSS would have received had Rolls Royce not issued the advisory. Gage asserts that he learned of defendants’ false claims during his revie w of Rolls Royce documents wh ile employed as an expert for Rolls Royce during that litigation

. On September 27, 2012, Gage filed his initial qui tam complaint . After Gage filed a First Amended Complaint, the go vernment declined to intervene

. Gage then fi led a Second Amended Complaint. After a hearing, the district court granted defendants’ motions to dismiss but permitted Gage a “final opportunity” to amend his complaint to compl y with Rule 9(b). Defendants again filed motions to dismiss the resulting T AC , and CSS filed a motion for sanctions, claiming that Gage had violated a protective order in the R olls Royce litigation. On July 2, 2014, the district court dismissed both the TAC and CSS’s motion for sanctions. The district court held that most of Gage’s claims were foreclosed by the public disclosure bar, and that no claims were pled adequately under Rule 9(b) . Gage was denied leave to amend a fourth time ,

a nd appeals the district court’ s dismissal with prejudice

. Case: 14-50704 Document: 00513115411 Page: 3 Date Filed: 07/14/2015No. 14

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4 DISCUSSION
I. The dispositive issue on appeal is whether the district court properly dismissed the TAC for failure to state a claim with particularity. A

. This court reviews a district court’s dismissal of a complaint for failu re to state a claim de novo, accepting as true the plaintiff’s well

- pleaded factual allegations. United States ex rel. Steury v. Cardinal Health, Inc. (“ Steury I ” ) , 625 F.3d 262, 266 (5th Cir. 2010) . “The plaintiff’s factual allegations must support a cl aim to relief that is plausible on its face and rises above mere speculation.” Id. A n FCA complaint must meet the heightened pleading standard of Rule 9(b)

. To allege fraud , “ a party must state with particularity the circumstances constituting fraud .” Fed. R. Civ. P. 9(b). “ Rule 9(b) requires, at a minimum, that a plaintiff set forth the ‘who, what, when, where, and how’ of the alleged fraud.” Id. (internal quotation marks and citation omitted) ; see also United States ex rel. Doe v. Dow Chem. Co. , 343 F.3d 325, 329 (5th Cir. 2003) (“The time, place and contents of the false representations, as well as the identity of the person making the misrepresentation and what [that person] obtained thereby must be stated

. . . in order to satisfy Rule 9(b).” (alt eration in original) (internal quotation marks and citation omitted ) ).
B

. A ny person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or who “knowingly makes, uses, or causes to be made or used, a fal se record or statement material to a false or fraudulent claim ” is liable under the FCA. 31 U.S.C. § 3729(a)(1)(A)

– (B). “[T]o state a claim under the FCA, a plaintiff must allege: (1) a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that is pr esented to the G overnment.” Case: 14-50704 Document: 00513115411 Page: 4 Date Filed: 07/14/2015No. 14

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5 Steury I , 625 F.3d at 267 (citing United States ex rel. Longhi v. Lithium Power Techs., Inc. , 575 F.3d 458, 467 (5th Cir. 2009)). C

. Gage does not alleg e that defendants expressly certified that parts sold to the government compli ed with any statute, regulation, or contractual provision. Rather, Gage’s allegations fall under the implied false certification theory of FCA liability. He alleges that the defendants, by selling parts to and request ing reimbursement from the government , implied that the parts complied with certain contractual or regulatory provisions. See id. at 268. For over a decade, this court has avoided deciding whether to recognize t he implied certification theory. See, e.g. id. (“ This Court has not yet recognized the implied

- certification theory.

. . . We need not resolve the issue today, because in any event the factual allegations in Steury ’ s amended complaint provide no basis fo r implying a false certification. ”); United State s ex rel. Willard v. Humana Health Plan of Tex. Inc. , 336 F.3d 375, 382 (5th Cir. 2003) (assuming without deciding that the implied false certification theory applies) . Because even assuming the theory appl ies, we find that the district court correctly held that Gage’s factual allegations do not plead with particularity the required “who, what, when, where, and how” of a n implied false claim, once again we defer that decision to another day.
1

. Gage’s implie d false certification theory fails because he does not plead with particularity what was false about the claims or how they were false

. A prerequisite for claims to be false is that they “certif [y] compliance (implicitly or explicitly) with some statute, regulation, or contract provision

. . . . ” Steury
I

, 625 F.3d at 269. To plead the “what” of a claim in a case such as this , therefore, a plaintiff must state with particularity the statute, re gulation, or contract provision with which defendants have certified compliance. See id. Case: 14-50704 Document: 00513115411 Page: 5 Date Filed: 07/14/2015No. 14

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6 Gage does not allege that defendants violated a statute. Instead, he claims that defendants violated several Federal Acquisition Regulation (“FAR”) and Defense Fede ral Acquisition Regulation Supplement (“DFARS”) provisions

. Gage does not plausibly allege that the operative contr act between the USAF and Northrop ( the “ Northrop contract ”) contains these provisions

. H e does not directly identify any contract provision that was violated, because he acknowledges he has not seen the Northrop contract. 2 See United States ex rel. Steury v. Cardinal Health, Inc. (“ Steury II ”), 735 F.3d 202, 206 (5th Cir. 2013) (holding allegations deficient because they did “not identify th e contractual provisions” allegedly violated)

. Gage argues that the Northrop contract must contain these provisions because they are mandatory, but FAR and DFARS provisions are not required in all government contracts. See 48 C

. F

. R

. § 1.104 (“The FAR app lies to all acquisitions as defined in part 2 of the FAR, except where expressly excluded .” (emphasis added) ) ; see also 48 C.F.R. § 46.311 (a) (“The contracting officer shall insert the clause at 52.246

- 11

. . . in solicitations and contracts when the inclusion of a higher

- level contract quality requirement
is necessary .” (emphasis added) ) ; see Ins

. Co. of N. Am. v. Aberdeen Ins. Servs.,
Inc. , 253 F.3d 878, 885 (5th Cir. 2001) (noting that some FAR provisions are
not automatically included in g overnment contract s ). Neither has Gage plausibly alleged that provisions listed in the TAC are independently applicable to the USAF or to military aircraft in Afghanistan. See , e.g. , 14 C

. F

. R

. § 91.9 (referring only to “civil” aircraft). 3

2 Defendant Northrop, the only party in this action that signed the contr act, disputes that the contract is classified. On a motion to dismiss, we accept as true all factual allegations contained within the complaint, so we assume the contract is classified. See Ashcroft v. Iqbal , 556 U.S. 662, 678

– 79 (2009).
3 Gage criticize s the district court for not crediting his allegations that Orion breached a second contract

— between USAF and Orion

— that required Orion to follow FAR and DFARS. The district court was correct to discount the Orion contract because the TAC Case: 14-50704 Document: 00513115411 Page: 6 Date Filed: 07/14/2015No. 14

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7 Gage’s failure to allege with particularity th at the Northrop contract includes the listed provisions , or that regulations are otherwise applicable, is fatal to his claim because m ateriality is a required element of an FCA claim. See Steury I , 625 F.3d at 267. And materiality

— whether the false claim ha s

“ a natural tendency to influence , or [ is ] capable of influencing, the payment or receipt o f money or property”

— is necessarily spe culative without particularized and plausible identification of the contractual or regu latory provision allegedly violated

. 31 U.S.C. § 3729(b)(4) (defining materiality as the term is used in the FCA ) ; Steury II , 735 F.3d at 207 (“[M]erely descriptive or conclusory allegations about the

. . . contract s [ are ] insufficient .” ). Gage therefore has not sufficiently ple ade d the what of a false claim. See United States ex rel. Thompson v. Columbia/HCA Healthcare Corp. , 125 F.3d 899, 903 (5th Cir. 1997) (“Thompson’s allegations

. . . amount to nothing more than speculation, and thus fail to satisfy Rule 9(b).”)

. E ven if the cited provisions did apply to defendants ’ actions , Gage merely lists them and has not ple ade d how they were violated. Gage uses conclusory terms such as “non

- conforming” and “unapproved” to describe the parts CSS sold, but does not explain how the parts failed to comply with the contract to maintain the BACN aircraft or with any applicable regulation

. The essence of Gage’ s complaint is that CSS sold a government contractor parts from a crashed aircraft without informin g the government of their pedigree , and at least one of those parts failed. Yet Gage fails to provide details on how these events were false or fraudulent. Gage concedes that “there is nothing inherently wrong under [FAA] regulations or the [FAR] with obtaining parts fr om an accident related aircraft ” and merely contends , without elaboration,

references the O rion contract in a single conclusory paragraph and does not plead the “what” or “how” of the false claims with any particularity. Case: 14-50704 Document: 00513115411 Page: 7 Date Filed: 07/14/2015No. 14

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8 that “the manner in which the defendants conspired to obtain the parts” violated the regulations. Gage has failed to allege how the parts deviated from

any govern ment standards. See Steury II , 735 F.3d at 206 (“[S]imply stating the conclusion will not do.

. . . [T]he essence of the fraudulent activity of implied false certification of compliance cannot be gauged unless [the relator] reveals how the [product] devia ted from the governme nt’s specifications.”) . Gage argues that the VFG’s failure and explosion show that it was non

- airworthy and so fail ed to comply with regulations. But post hoc product failure is not enough , standing alone, to create an inference that the product was non
compliant at the time of sale. Cf. Casey v. Toyota Motor Eng’g & Mfg. N. Am.,
Inc. , 770 F.3d 322, 326 (5th Cir. 2014) (stating the general rule that product failure, standing alone, is insufficient proof of a manufacturing defect unde r state products liability law). Gage further argues that complying with the Rule 9(b) pleading standard is impossible b ecause the Northrop contract is classified

. W e may relax the pleading requirements of 9(b) if “facts relating to the fraud are peculiar ly within the perpetrator’s knowledge.” Dow Chem. Co. , 343 F.3d at
330 (internal quotation marks and citation omitted). Here, relaxation is not warranted. The contract is not peculiarly within Northrop’s knowledge because the USAF , as Northrop’s counterparty, p resumably also has knowledge of the contract. See United States ex rel. Russell v. Epic Healthcare Mgmt. Grp. , 193 F.3d 304, 308 (5th Cir. 1999) (declining to relax the 9(b) standard where a government entity possessed documents containing requisite information) , abrogated on other grounds by United States ex rel. Eisenstein v. City of New York , 556 U.S. 928 (2009)

. 2

. The TAC also fails to plead with particularity when and where defendants made false claims. Gage states the precise dates of Bombardier’s Case: 14-50704 Document: 00513115411 Page: 8 Date Filed: 07/14/2015No. 14

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9 alleged submissions of parts to original equipment manufacturers for repair, and of CSS’s sales of parts to Orion. However, Gage does not allege with any specificity when Northr op

— or any other defendant

— presented invoices to the USAF. Gage alleges only that defendants submitted nearly $4 million of false invoices to the government between 2009 and 2011. This range is not specific enough to comply with Rule 9(b). See United Sta tes ex rel. Hebert v. Dizney , 295 F. App’x 717, 722

– 23 (5th Cir. 2008) (allegations that defendants routinely submitted bills over the course of seven years were not sufficiently specific under 9(b)). Gage hypothesizes , in his brief and without citing the TAC, that the submission of invoices occurred within sixty days of the sale of the parts. This contention is speculative and does not withstand dismissal under Rule 9(b). Gage also fails to plead where the alleged wrongful acts occurred.
3

. By not alleg ing with particularity the who , what , when , where , and how of the alleged fraudulent scheme, Gage has failed to comply with Rule 9(b).
D

. Gage contends that the district court erred in not permitting him to amend his complaint for a fourth time

. We review a district court ’ s denial of leave to amend a pleading for abuse of discretion. See Steury I , 625 F.3d at 266. “The district court properly exercises its discretion

. . . when it denies leave to amend for a substantial reason, such as undue delay, repea ted failures to cure deficiencies, undue prejudice, or futility.” United States ex rel. Spicer v. Westbrook , 751 F.3d 354, 367 (5th Cir. 2014) . The district court denied Gage leave to amend because it determined that he had years and several chances
to r efine his pleadings, he was previously warned that the TAC would be his last chance, and “leave to amend would be wholly futile.” Gage does not identify new allegations that would make amendment effective . Instead, he

rea rgu es that the TAC already satisf ies the requirements of Rule 9(b) and say s Case: 14-50704 Document: 00513115411 Page: 9 Date Filed: 07/14/2015No. 14

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10 that he would name additional defendants if granted leave to amend

. 4 T he district court did not abuse its discretion in determining that Gage has had sufficient opportunity to plead his claims and that further amendment would be futile. 5 II. We therefore hold that this case was properly dismissed with prejudice for failure to plead fraud with particularity. “Because this Court may affirm on any grounds supported by the record below,” we need not address the interesting and difficult jurisdiction al questions concerning the public disclosure and original source doctrines

. Dow Chem. Co. , 343 F.3d at 330. CONCLUSION
For t he foregoing reasons, we AFFIRM the judgment of the district court.

4 Gage also argues that he is no longer constrained from including detailed allegations in the TAC because the specter of sanc tions for violating the protective order in the Rolls Royce litigation has been removed. T he motion for sanctions was dismissed, not denied, so Gage has not shown that he may freely add any new allegations that previously had been subject to the protectiv e order

. 5 Gage’s difficult y in serving Orion does not warrant granting leave to amend because curing it will have no effect on the deficient allegations in the complaint. Case: 14-50704 Document: 00513115411 Page: 10 Date Filed: 07/14/2015