Court Opinion

ID: 2680525
Source: CourtListenerOpinion
Date Created: 2014-06-25 21:00:32.158709+00
Date Added: 2024-06-11T09:40:42.696907
License: Public Domain

FILED
                            NOT FOR PUBLICATION                               JUN 24 2014

                                                                          MOLLY C. DWYER, CLERK
                     UNITED STATES COURT OF APPEALS                        U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

THOMAS A. BERG; et al.,                           No. 13-35617

              Plaintiffs - Appellants,            D.C. No. 3:07-cv-00215-JWS

  v.
                                                  MEMORANDUM*
HONEYWELL INTERNATIONAL, INC.
And HONEYWELL, INC.,

              Defendants - Appellees.

                    Appeal from the United States District Court
                             for the District of Alaska
                    John W. Sedwick, District Judge, Presiding

                         Argued and Submitted June 3, 2014
                                Anchorage, Alaska

Before: WALLACE, WARDLAW, and CHRISTEN, Circuit Judges.

       In this qui tam action under the False Claims Act (FCA), Thomas Berg and

three other plaintiffs (collectively, “the Relators”) allege that Honeywell, Inc.

(“Honeywell”) knowingly submitted fraudulent energy baseline estimates to induce

the U.S. Army to contract with it to overhaul the energy production system at Fort

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Richardson, Alaska. The Relators appeal from the district court’s dismissal of their

action, which dismissed their First Amended Complaint (FAC) and denied their

motion for leave to amend the complaint. We have jurisdiction pursuant to 28

U.S.C. § 1291. We affirm in part, reverse in part, and remand.

      1.     The district court did not err in concluding that the FAC fails to plead

Honeywell’s alleged fraud with sufficient particularity to satisfy Federal Rule of

Civil Procedure 9(b). The FAC does not provide enough “particularized

supporting detail” to put Honeywell on notice of the specific conduct it must

defend. Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001). The FAC

generally alleges that Honeywell knowingly falsified its calculations of existing

“baseline” energy costs at Fort Richardson and fraudulently projected savings it

knew it could not achieve. But the FAC fails to allege how Honeywell did so.

      2.     The district court abused its discretion by denying leave to amend on

the sole basis that any amendment would be futile. Denial of leave to amend on

the grounds of futility is improper unless it is “clear . . . that the complaint could

not be saved by any amendment.” United States ex rel. Lee v. Corinthian Colls.,

655 F.3d 984, 995 (9th Cir. 2011) (emphasis added) (internal quotation marks

omitted). The Relators’ proposed Second Amended Complaint (SAC) and their

previously submitted declarations set forth sufficient factual detail to properly

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plead an FCA fraud-in-the-inducement claim under Rule 9(b). See United States

ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166, 1173 (9th Cir. 2006). The SAC

and the declarations explain how Honeywell allegedly falsified its estimates—for

instance, by overwriting Department of Energy software to include non-standard

values for heat infiltration—and identify specific individuals allegedly aware of the

fraud from its inception. The record contains sufficient factual allegations for the

Relators to plead the “who, what, when, where, and how” of the alleged fraud.

Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1998). The Relators would be well

served, however, to consolidate all of the relevant material in one concise pleading

that omits extraneous allegations of mere “[b]ad math.” Wang v. FMC Corp., 975
F.2d 1412, 1420 (9th Cir. 1992).

      The possibility that Honeywell may prevail at a later stage of this litigation

under the so-called government knowledge defense to FCA liability does not

support the conclusion that the Relators’ complaint cannot be saved by any

amendment. Government officials’ knowledge of a claim’s falsity is not a defense

to liability, but it may be “highly relevant” in demonstrating that the government

contractor “did not submit its claim in deliberate ignorance or reckless disregard of

the truth.” United States ex rel. Hagood v. Sonoma Cnty. Water Agency, 929 F.2d
1416, 1421 (9th Cir. 1991). This is a fact-specific inquiry that requires the court to

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draw inferences from evidence in the record. See Hooper v. Lockheed Martin

Corp., 688 F.3d 1037, 1051 (9th Cir. 2012). It is therefore appropriate “at the

summary judgment stage or after trial,” United States ex rel. Butler v. Hughes

Helicopters, Inc., 71 F.3d 321, 327 (9th Cir. 1995), not at the motion to dismiss

stage.

         We decline Honeywell’s invitation at oral argument to affirm the denial of

leave to amend on the alternative basis that any amendment would be futile

because the Relators cannot state a plausible claim for relief. See Alvarez v.

Chevron Corp., 656 F.3d 925, 930–31 (9th Cir. 2011). Honeywell argues that,

because it could not be paid under an Energy Savings Performance Contract

without achieving savings, the allegation that it fraudulently projected savings it

knew it could not achieve is inherently illogical. The Relators allege, however,

that Honeywell believed from the outset that the Army would eventually

renegotiate the contract on terms more favorable to Honeywell even if no savings

were initially realized. This theory is not implausible.

         Each party shall bear its own costs.

         AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

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