2009 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-5-2009

Arnold v. CMC Engineering

Precedential or Non-Precedential: Precedential

Docket No. 07-1617

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Recommended Citation

"Arnold v. CMC Engineering" (2009). 2009 Decisions. Paper 1280.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 07-1617

_____________

THE UNITED STATES DEPARTMENT OF

TRANSPORTATION, ex rel. AUGUST W. ARNOLD, 

an individual

 v.

CMC ENGINEERING; ERDMAN ANTHONY ASSOCIATES,

INC.; L. ROBERT KIMBALL & ASSOCIATES; 

M.A. BEECH; MACKIN ENGINEERING; MCTISH,

KUNKEL & ASSOCIATES; MICHAEL BAKER, JR., INC;

SAI CONSULTING ENGINEERS, INC; 

VE ENGINEERING, INC.

 August W. Arnold,

 Appellant

_____________

On Appeal from the United States District Court 

for the Western District of Pennsylvania

(D.C. Civ. No. 03-cv-1580)

District Judge: Honorable Gary L. Lancaster

_____________

Argued January 6, 2009
 Honorable John R. Padova, District Judge for the United States *

District Court for the Eastern District of Pennsylvania, sitting by

designation. 

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Before: FUENTES and FISHER, Circuit Judges and PADOVA,

*

District Judge

(Opinion Filed: May 5, 2009 )

Jon Pushinsky (Argued)

1808 Law & Finance Building

Pittsburgh, PA 15219

Attorney for Appellant

Efrem M. Grail (Argued)

Colin E. Wrabley

Reed Smith LLP

435 Sixth Avenue

Pittsburgh, PA 15219

Attorneys for Appellee Michael Baker, Jr., Inc.

John G. Ebken (Argued)

Eugene A. Giotto

John R. Leathers

Buchanan, Ingersoll, & Rooney PC

One Oxford Centre

40 Floor th

Pittsburgh, PA 15219

Attorneys for Appellee L. Robert Kimball & Associates,

Inc.

Jonathan K. Hollin (Argued)

Paul A. Logan

Powell, Trachtman, Logan, Carrle and Lombardo, P.C.

475 Allendale Road

King of Prussia, PA 19406

Attorneys for CMC Engineering and Erdman Anthony

Associates, Inc.
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Ira L. Podheiser

Burns, White & Hickton, LLC

Four Northshore Center

106 Isabella Street

Pittsburgh, PA 15212

Attorneys for Mackin Engineering, Inc.

Bradford Dorrance

Keefer Wood Allen & Rahal, LLP

210 Walnut Street

P.O. Box 11963

Harrisburg, PA 17108-1963

Attorney for VE Engineering, Inc.

Steven D. Irwin

David V. Weicht

Leech Tishman Fiscaldo & Lampl, LLC

Citizens Bank Building, 30th Floor

525 William Penn Place

Pittsburgh, PA 15219

Attorneys for McTish, Kunkel & Associates

James R. Hanke

Beverly A. Block

Sherrard, German & Kelly, P.C.

28th Floor, Two PNC Plaza

620 Liberty Avenue

Pittsburgh, PA 15222

Attorneys for SAI Consulting Engineers, Inc.

Jason M. Yarbrough

Thomas A. Berret

Jessica R. Quinn-Hogan

Meyer, Unkovic & Scott

1300 Oliver Building

Pittsburgh, PA 15222

Attorneys for M.A. Beech

Charles W. Scarborough (Argued)

Thomas M. Bondy
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Amy Easton

Department of Justice

Civil Division, Room 7244

950 Pennsylvania Avenue, N.W.

Washington, D.C. 20530-3001

Amicus Curiae for the Court

OPINION OF THE COURT

FUENTES, Circuit Judge:

In this qui tam action, filed by August Arnold, the Relator

alleges that the Defendants, consultants who provided services to

the Pennsylvania Department of Transportation (“PennDOT”),

falsified their credentials to qualify for higher pay rates. Arnold

contends that, as a result, the consultants defrauded the federal

government, which funded the contracts at issue, in violation of the

False Claims Act (“FCA”), 31 U.S.C. § 3729. On motions to

dismiss, the District Court concluded that claims presented to state

agencies that disburse federal funds are not actionable under the

FCA, and because Arnold failed to allege that the consultants’ false

claims were presented to or approved by the federal government,

as opposed to the state agency, they were not actionable.

While this appeal was pending, the United States Supreme

Court decided Allison Engine Co. v. United States ex rel. Sanders,

128 S. Ct. 2123 (2008), which held that the method by which

federal funds are disbursed by federal grantees is relevant to

determining whether a defendant possessed the requisite intent to

defraud the federal government as required by the FCA. Because

the District Court did not have the benefit of Allison Engine when

it ruled on the instant matter, we will vacate and remand for further

proceedings.

I.
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August Arnold is a retired PennDOT employee. While at

PennDOT, one of Arnold’s duties was to conduct field audits of

consultants who provided engineering and inspection services on

road and bridge projects for PennDOT. Defendants Michael

Baker, Jr., Inc.; L. Robert Kimball & Associates, Inc.; CMC

Engineering; and Erdman Anthony Associates, Inc. (collectively

“consultants”) were among the engineering consultants subject to

the audit, which spanned from 2000 until 2002. The audits

uncovered significant overcharges to PennDOT for services

performed by individuals who worked on behalf of the consultants.

Specifically, the audits disclosed that the consultants submitted

bills for services by individuals who did not possess the requisite

credentials to justify their hourly pay rates under the consulting

contracts at issue. Arnold alleges that PennDOT officials

knowingly overpaid the consultants because of systemic corruption,

which included prohibited gift-giving in exchange for the hiring

and payment of unqualified contract personnel. At least eighty

percent of PennDOT’s funding for the contracts originated from

the Federal Highway Administration, which is a branch of the

United States Department of Transportation (“U.S. DOT”). 

Arnold’s disclosure of the overpayment ultimately led to an

independent review, which revealed that over twenty percent of the

consultants examined during the review had flawed credentials. As

a result, some of the consultants returned a portion of the

overpayments to PennDOT.

In October 2003, Arnold, as the Relator on behalf of the

federal government, filed a qui tam complaint in the United States

District Court for the Western District of Pennsylvania, asserting

claims against the six consultants under the FCA. The complaint

alleged that the consultants were engaged in a fraudulent scheme

to obtain overpayments for engineering, inspection, and consultant

services on federally-funded highway projects administered by

PennDOT. The United States declined to intervene. 

The consultants moved to dismiss, arguing, among other

things, that Arnold had insufficiently alleged that the consultants

had presented false claims to the federal government. As the real

party in interest, the federal government filed two Statements of
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Interest in the District Court opposing the consultants’ motions to

dismiss. The District Court granted Arnold leave to amend his

complaint twice, and each time the consultants renewed their

motions to dismiss. 

On February 7, 2007, the District Court granted the

consultants’ motion to dismiss the Second Amended Complaint.

The District Court stated that the FCA imposes liability only on

those who defraud the federal government, further noting that

“[t]he sine qua non of [the FCA] is Federal government

involvement in paying, approving, or allowing false claims.” U.S.

Dep’t of Transp. ex rel. Arnold v. CMC Eng’g, No. 03-1580, 2007

WL 442237, at *4 (W.D. Pa. Feb. 7, 2007). The District Court

concluded that Arnold “ha[d] not established that any defendant

presented a false claim to the [f]ederal government, made a false

statement in order to get a false claim paid or allowed by the

[f]ederal government, or conspired to get a false claim paid or

allowed by the [f]ederal government.” Id. at *1. The District

Court further held that because the FCA requires that the fraudulent

claim be presented to the federal government, not a grantee of

federal funds, it was irrelevant that PennDOT receives substantial

funding from U.S. DOT. Id. at *3. The District Court similarly

ruled that Arnold’s allegation that PennDOT is an agent of U.S.

DOT was insufficient, as was his allegation that the false claims

were presented to the federal government when Federal Highway

Administration inspectors reviewed PennDOT project sites and

logs. Id. Arnold filed a timely Notice of Appeal.

As we previously noted, while this appeal was pending the

United States Supreme Court decided Allison Engine Co. v. United

States ex rel. Sanders, 128 S. Ct. 2123 (2008), in which a

unanimous Court held that the funding mechanism by which

fraudulent claims prompt the disbursement of federal funds via a

federal grantee is instructive in determining whether a relator has

stated a claim under the FCA. Following this decision, the

consultants asked this Court to summarily affirm the District

Court’s dismissal of this case. We denied the motion.

II.
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The District Court had subject matter jurisdiction under 

28 U.S.C. § 1331. We have jurisdiction under 28 U.S.C. § 1291.

We exercise plenary review of the District Court’s order

granting the consultants’ motion to dismiss. Santiago v. GMAC

Mortgage Group, Inc., 417 F.3d 384, 386 (3d Cir. 2005). When

reviewing a motion to dismiss for failure to state a claim under

Federal Rule of Civil Procedure 12(b)(6), we accept as true all

well-pled factual allegations in the complaint and all reasonable

inferences that can be drawn from them, and we affirm the order of

dismissal only if the pleading does not plausibly suggest an

entitlement to relief. Wilkerson v. New Media Tech. Charter Sch.,

Inc., 522 F.3d 315, 321-22 (3d Cir. 2008).

III.

Originally enacted in 1863, the FCA is the most frequently

used of a handful of current laws creating a form of civil action

known as “qui tam.” Vt. Agency of Natural Res. v. United States

ex rel. Stevens, 529 U.S. 765, 768 (2000). “Qui tam is short for the

Latin phrase qui tam pro domino rege quam pro se ipso in hac parte

sequitur, which means ‘who pursues this action on our Lord the

King’s behalf as well as his own.’” Id. at 768 n.1. In modern

practice, “qui tam actions are brought by private plaintiffs on

behalf of the Government in exchange for some portion of any

resulting damages award.” Rodriguez v. Our Lady of Lourdes

Med. Ctr., 552 F.3d 297, 299 n.1 (3d Cir. 2008). Those private

plaintiffs are referred to as “relators.” United States ex rel.

Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 (3d Cir. 2004).

Under the False Claims Act, any person is liable to the

United States government for a civil penalty who:

(1) knowingly presents, or causes to be presented, to

an officer or employee of the United States

Government or a member of the Armed Forces of the

United States a false or fraudulent claim for payment

or approval;

(2) knowingly makes, uses, or causes to be made or
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used, a false record or statement to get a false or

fraudulent claim paid or approved by the

Government;

(3) conspires to defraud the Government by getting

a false or fraudulent claim allowed or paid . . . .

31 U.S.C. § 3729(a) (emphasis added). 

Because the word “presents” is missing from §§ 3729(a)(2)

and (a)(3), there has been significant debate about whether there is

a “presentment” requirement in those subsections. For example, in

United States ex rel. Totten v. Bombardier Corp., the D.C. Circuit

held that §§ 3729(a)(2) and (a)(3) do require direct presentment to

the federal government. 380 F.3d 488 (D.C. Cir. 2004); see also

United States ex rel. DRC, Inc. v. Custer Battles, LLC, 472 F.

Supp. 2d 787, 790 (E.D. Va. 2007) (endorsing Totten’s holding

that § 3729(a)(2) requires presentment); United States ex rel.

Atkins v. McInteer, 345 F. Supp. 2d 1302, 1304-05 (N.D. Ala.

2004) (holding that § 3729(a)(3) requires presentment). However,

in United States ex rel. Sanders v. Allison Engine Co., the Sixth

Circuit held that §§ 3729(a)(2) and (a)(3) do not require direct

presentment. 471 F.3d 610, 614-15 (6th Cir. 2006), vacated by 128

S. Ct. 2123 (2008); see also United States ex rel. Mikes v. Straus,

84 F. Supp. 2d 427, 432 (S.D.N.Y. 1999) (excluding the

“presentment” requirement from the elements of §§ 3729(a)(2) and

(a)(3)). See generally United States ex rel. Farmer v. City of

Houston, 523 F.3d 333, 338 (5th Cir. 2008) (discussing the

unsettled nature of whether there is a presentment requirement in

§ 3729(a)(2) but deciding the case on other grounds). The

“presentment” requirement compels the relator to establish that the

defendants presented the false claim to the federal government to

induce payment based on that fraudulent claim. To resolve the

conflict between the Courts of Appeals, the Supreme Court granted

certiorari in Allison Engine. 

In Allison Engine, the United States Navy had contracted

with two shipbuilders, both private companies, to build destroyers.

The shipyards then subcontracted with a company, Allison Engine,

to build the generators for the ships. Allison Engine then
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subcontracted with various other companies to build and assemble

component parts of the generators. Employees of one of the

subcontractors sued under the FCA, alleging that the invoices

submitted by the subcontractors to the shipyards were fraudulent.

However, the relator did not establish at trial that the invoices had

been submitted to the Navy (i.e., the federal government).

Therefore, the issue in Allison Engine was whether it was

sufficient for an FCA claim that government funds, given to the

shipyards by the Navy in advance and disbursed by the shipyards

at their discretion without further federal government involvement,

were used to pay fraudulent claims. See 128 S. Ct at 2126-27.

The Supreme Court first examined the statutory language

and noted that § 3729(a)(2) requires that the defendant make a false

statement “to get” a fraudulent claim paid by the government. The

Court found that “to get” denoted intent to induce the federal

government to pay a false claim. Moreover, the Court noted that

getting a fraudulent claim “paid by the government” is not the same

as getting a fraudulent claim “paid by government funds.” Id. at

2128. The Court specifically stated that “[e]liminating th[e]

element of intent . . . would expand the FCA well beyond its

intended role of combating ‘fraud against the Government.’” Id.

(quoting Rainwater v. United States, 356 U.S. 590, 592 (1958)).

If the scope of the FCA was not limited in this manner, the Court

speculated that liability under the FCA could attach to fraud against

any institution that receives at least some federal grants. Id.

Similarly, § 3729(a)(3) makes liable any person who

“conspires to defraud the Government by getting a false or

fraudulent claim” paid. Like § 3729(a)(2), the Supreme Court read

this subsection to require that the conspirators intend to defraud the

federal government, rather than conspiring to defraud another

entity which uses or disburses government funds. Id. at 2130.

Again, the Court noted that it was not implying a “presentment”

requirement into § 3729(a)(3), but rather requiring that a relator

establish that the conspirators agreed that the false statement

“would have a material effect on the [federal] Government’s

decision to pay the false or fraudulent claim.” Id. at 2130-31.

Although the Court held that there is no direct presentment
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requirement in §§ 3729(a)(2) and (a)(3), the Court described

indirect methods of federal government involvement in the

payment of fraudulent claims that could still meet the requirements

of the FCA. Without question, Allison Engine categorically

precludes liability under the FCA when fraudulent claims induce

private entities to disburse federal funds over which the private

entity has complete control. In other words, if the federal

government provides money in a lump sum to a grantee, and is

thereafter uninvolved in the disbursement of the funds, the FCA

does not apply. However, the Court left open the possibility that,

if the federal government is somehow involved in the grantee’s

disbursement of federal money, FCA liability may exist. The Court

used the following hypothetical to explain: a subcontractor creates

an invoice that relies on a false statement, and the subcontractor

submits that invoice to the prime contractor; the prime contractor

relies on the subcontractor’s invoice to generate its own invoice,

which the prime contractor submits to the federal government.

Under this scenario, the subcontractor intentionally used a false

claim to induce payment by the federal government, albeit

indirectly. Id. at 2130. Therefore, the subcontractor’s actions

would fall within the ambit of the FCA.

Of particular note is the manner with which the Court

distinguished the facts of Allison Engine, emphasizing that the

grantee of federal funds was a private, not public, entity. For

example, the Court stated, “[i]f a subcontractor or another

defendant makes a false statement to a private entity and does not

intend the Government to rely on that false statement as a condition

of payment, the statement is not made with the purpose of inducing

payment of a false claim ‘by the Government.’” Id. at 2130

(emphasis added). Similarly, the Court noted, “[r]ecognizing a

cause of action under the FCA for fraud directed at private entities

would threaten to transform the FCA into an all-purpose anti fraud

statute.” Id. (emphasis added). With regard to the conspiracy

prong of the FCA, the Court stated that “[u]nder [§ 3729(a)(3)], it

is not enough for a plaintiff to show that the alleged conspirators

agreed upon a fraud scheme that had the effect of causing a private

entity to make payments using money obtained from the

Government. Instead, it must be shown that the conspirators

intended ‘to defraud the Government.’” Id. (emphasis added). In
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other words, it is not sufficient for a plaintiff to allege merely that

the false statement’s use resulted in getting paid with funds

traceable to the Government. Rather, a plaintiff asserting a claim

under §§ 3729(a)(2) and (a)(3) must allege that the defendant

intended to use the false record or statement to be paid by the

government, not by any other party.

It is unclear how much, if at all, the difference between

public grantee versus private grantee should drive a court’s

analysis. Regardless, we believe that this distinction further

supports our holding that Allison Engine casts doubt on the District

Court’s decision to categorically exclude false claims made to state

transportation agencies, which are funded in large part by the

federal government, from the purview of the FCA.

Allison Engine does not conclusively determine the outcome

of Arnold’s case, but it is instructive. Examining Arnold’s claims

under the rubric of Allison Engine, it is clear that the mechanism

of the funding scheme by which PennDOT pays its contractors is

determinative of whether the District Court’s dismissal of the

claims was appropriate. If the Federal Highway Administration

was involved in the disbursement of funds from PennDOT to the

consultants upon submission of the fraudulent claims in any way,

Arnold’s claims may be actionable under the FCA and it is possible

the consultants’ motion to dismiss should have been denied. In

light of Allison Engine, the District Court should reconsider its

view that a relator can never successfully allege violations of the

FCA as they pertain to state transportation agencies.

IV.

For the reasons stated, we will vacate and remand for further

proceedings consistent with this opinion.