Opinion ID: 177996
Heading Depth: 1
Heading Rank: 14

Heading: Allison Engine the applicable scienter requirement

Text: Defendants first raised the issue of the proper scienter requirement in a post- Bahrani I, pretrial motion for summary judgment based upon the Supreme Court's June 9, 2008 decision in Allison Engine Co. v. United States, 553 U.S. 662, 128 S.Ct. 2123, 170 L.Ed.2d 1030 (2008). The district court summarily denied the motion with the admonition that the issue raised w[ould] need to be addressed in the context of drafting appropriate jury instructions. Dist. Ct. Doc. 337 at 1. The district court subsequently issued a pretrial order entitled ORDER RE SCIENTER STANDARD, Aplee. Supp.App. at 353, that concluded as follows: To summarize, the scienter requirement will be articulated as the act of making a major or significant change (or correction) to a hide export certificate without getting a replacement when the actor either (1) knew at the time he discovered a change was necessary that the change required getting a replacement certificate; (2) knew major or significant changes required replacement certificates but was deliberately ignorant of whether the particular change made fell into that category; or (3) knew major or significant changes required replacement certificates but acted in reckless disregard of whether the change fell into that category. I apply this standard out of an abundance of caution and am aware that Allison Engine may support the imposition of a higher (specific intent) level of scienter for reverse false claims under the Act. However, it will be for the Tenth Circuit to hold Mr. Bahrani to this higher standard, not me. Id. at 358-59. At trial, defendants moved for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50 based upon Allison Engine. Aplt.App. at 2213-14 (Your Honor, our motion relates to the evidence relating to whether the ConAgra employees making the changes had any purpose or intent to avoid a fee for replacement certificates.    [I]t is absolutely clear that there is no evidence to support any finding that the ConAgra employees acted with any purpose, [or] intent to avoid a fee for replacement certificates.). Consistent with its pretrial rulings, the district court denied those motions, but included on the verdict form a special interrogatory that asked the jury, How many of the hide export certificates containing major or significant changes, for which no replacement certificate was obtained, do you find by a preponderance of the evidence were changed with the intent or purpose of `concealing, avoid or decreasing' the obligation to secure and pay for a replacement certificate? Aplt. App. at 2420. At the conclusion of all the evidence, the jury found that only five out of the thousand-plus certificates at issue contained major or significant changes. The jury also found that none of these five certificates were changed with the intent or purpose of concealing, avoiding, or decreasing the obligation to secure and pay for a replacement certificate. On March 19, 2009, the district court issued an AMENDED ORDER FOR JUDGMENT that stated, in pertinent part: The first phase of the bifurcated trial in this reverse-false claim qui tam action commenced on April 28, 2008 and resulted in a jury verdict finding Relator Ali Bahrani was not the original source of his meat export certificate claims. The second phase of the trial, which was then limited to Relator's reverse-false claims related to hide export certificates, was tried to a jury of 12 commencing Monday, March 9, 2009. After less than a day of deliberations yesterday, the jury returned a verdict finding that, of the 1000+ certificates proffered by the Relator as reverse false claims under 31 U.S.C. § 3729(a)(7), five had been changed in a major or significant way, and all five had been changed under circumstances where the employee who made the changes did so knowing that rather than making the changes directly to the certificate, he or she was required to secure a replacement certificate at a cost of $21.50 payable to the United States Government. Because actionable scienter in this case was framed in terms of knowledge, rather than intent, these findings support the entry of judgment in favor of Relator and against Defendants on five of Relator's reverse false claims under 31 U.S.C. § 3729(a)(7), and in favor of Defendants and against Relator on Relator's remaining 995 + reverse false claims. Id. at 2422-23 (citation omitted). In a footnote that accompanied this paragraph, the district court also stated: I note that the jury, in an advisory capacity in the event the Tenth Circuit adopts the Supreme Court's Allison Engine intent or purpose to defraud standard for scienter on appeal, also found that the employee actions in changing the five certificates at issue in a major or significant way were not made with the intent or purpose of concealing, avoiding or decreasing any obligation to secure and pay for replacement certificates. Id. at 2423 n. 1 (citation omitted). In their cross-appeal, defendants now challenge the district court's denial of their Rule 50 motions. We review such rulings de novo. Burrell v. Armijo, 603 F.3d 825, 832 (10th Cir.2010) (We review de novo the district court's decision on a Rule 50(b) motion for judgment as a matter of law.). In Allison Engine, the Supreme Court granted review ... to decide what a plaintiff asserting a claim under two specific provisions of the FCA, i.e., 31 U.S.C. § 3729(a)(2) and (3), [13] must show regarding the relationship between the making of a `false record or statement' and the payment or approval of `a false or fraudulent claim ... by the Government.' 553 U.S. at 665, 128 S.Ct. 2123 (quoting § 3729(a)(2)). Turning first to § 3729(a)(2), the Court held that a plaintiff asserting a ... claim [thereunder] must prove that the defendant intended that the false record or statement be material to the Government's decision to pay or approve the false claim. Id. In reaching this conclusion, the Court emphasized that the intent requirement [it] discern[ed] in § 3729(a)(2) derive[d] not from the term `knowingly,' but rather from the infinitive phrase `to get.' Id. at 671 n. 2, 128 S.Ct. 2123. Relatedly, the Court also emphasized that while § 3729(b)'s definition of knowing and knowingly refers to specific intent with regard to the truth or falsity of the `information,' its holding refer[red] to a defendant's purpose in making or using a false record or statement. Id. Moving on to § 3729(a)(3), the Court held, in similar fashion, that a plaintiff asserting a claim [there]under ... must show that the conspirators agreed to make use of the false record or statement in order to get the government to pay or approve a false claim. Id. at 665, 128 S.Ct. 2123. In other words, the Court held, it must be established that the[ ] [conspirators] agreed that the false record or statement would have a material effect on the Government's decision to pay the false or fraudulent claim. Id. at 673, 128 S.Ct. 2123. Defendants argue that although Allison Engine involved claims brought under § 3729(a)(2) and (a)(3), the holding is equally applicable to claims brought under § 3729(a)(7), i.e., the FCA's reverse false claims subsection that defendants purportedly violated when they made major or significant changes to hide certificates. Aplee. Br. at 67. More specifically, defendants assert that [t]he language of (a)(7) is the mirror of (a)(2) because [s]ection (a)(2) prohibits using a false statement `to get' paid, and section (a)(7) prohibits using a false statement `to avoid' paying. Id. Just as the term `to get' denotes purpose, defendants argue, so does the term `to avoid.' Id. In short, they argue, [t]here is no principled way to impute an intent requirement onto (a)(2) claims without doing the same for (a)(7) claims. Id. We agree. Section 3729(a)(7) imposes liability on [a]ny person who ... knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(7). [14] As the Ninth Circuit has noted, [t]he plain language of this statute requires that a defendant make or use a false record or statement in order to conceal, avoid or decrease an obligation to pay the government. United States v. Bourseau, 531 F.3d 1159, 1169 (9th Cir.2008). And, as defendants suggest and the government agrees in its amicus brief, subsection (a)(7)'s use of the phrase to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government is effectively indistinguishable from subsection (a)(2)'s operative phrase to get a false or fraudulent claim paid or approved by the Government. In other words, as the Supreme Court indicated in Allison Engine, both phrases incorporate an intent requirement. See Gov't Br. at 10 (the same connotation of purpose that the Supreme Court found in the infinitive phrase `to get' in § 3729(a)(2) is present in the corresponding phrase `to conceal, avoid, or decrease' in § 3729(a)(7).). In the case of subsection (a)(7), this means that a plaintiff attempting to prove liability thereunder must establish that the defendant made a false record or statement for the purpose of concealing, avoiding, or decreasing an obligation to pay or transmit money or property to the Government. Allison Engine, 553 U.S. at 671, 128 S.Ct. 2123. In turn, it is clear, given the jury's findings in response to the special interrogatory at the hide export certificates trial, that the judgment entered in favor of Bahrani and against defendants as it relates to the hide export certificate claims must be reversed and the case remanded to the district court. The only question is whether, as suggested by defendants, the district court should be instructed to enter judgment in favor of defendants on all the hide certificate claims, or whether, as urged by the government, the five viable hide export certificate claims must be retried. In its amicus brief, the government argues, in somewhat confusing fashion, that the FCA's reverse false claims provision, § 3729(a)(7), must cover those cases where a defendant employs a statement for the purpose of avoiding an obligation to paywhether or not he has actual knowledge of the existence or scope of the obligation. Gov't. Br. at 15. Otherwise, the government argues, the word `knowingly' in § 3729(a)(7) would cease doing any independent work. Id. Here, the government argues, [t]he jury's advisory verdict is ambiguous, and leaves open the possibility that ConAgra lacked the requisite intent [to defraud] only because it remained recklessly ignorant of whether it owed the obligation. Id. at 19. The jury should instead have been instructed, the government argues, to determine whether Con[A]gra acted with the purpose of diminishing the amount it paid to the government, whether or not it had actual knowledge that it should have secured the five replacement certificates. Id. Thus, the government asserts, the case must be remanded to the district court for further trial proceedings on those five certificates. We reject the government's position. As we see it, the government's position improperly conflates § 3729(b)'s knowingly standard and § 3729(a)(7)'s intent requirement. In Allison Engine, the Supreme Court emphasized that the intent requirement ... derives not from the term `knowingly,' but rather from the infinitive phrase [`to conceal, avoid, or decrease' in § 3729(a)(7)]. 553 U.S. at 671 n. 2, 128 S.Ct. 2123. In other words, Allison Engine effectively rejected the notion that the intent requirement incorporates § 3729(a)(7)'s knowingly standard. And with good reason. As defendants aptly note, [i]f every defendant who knows or should know about an obligation to pay money is automatically deemed to have acted with the purpose of decreasing the obligation, there is no purpose or intent standard left, Aplee. Reply Br. at 10-11, and we would be left with something akin to a strict liability standard, id. at 10. Thus, in sum, we conclude the district court's judgment pertaining to the hide export certificates trial must be reversed and the case remanded to the district court with directions to enter judgment in favor of defendants on Bahrani's hide export certificate claims. C. Appeal No. 09-1388 (Bahrani's appeal of the fee award) In a separate appeal (No. 09-1388), Bahrani challenges on several grounds the district court's ruling on his motion for fees, expenses and costs. These challenges, however, have been rendered moot by our ruling on defendants' cross-appeal. More specifically, because we find it necessary to reverse the district court's pertaining to the hide export certificates trial, the district court's award of expenses, fees and costs in favor of Bahrani must necessarily also be reversed.