U.S. ex rel. Ali v. Daniel, Mann, Johnson

• Decision Date: 20 January 2004
• Docket Number: No. 02-56432.,02-56432.
• Parties: UNITED STATES, ex rel. A. Amir ALI, under 31 U.S.C. Section 3729, Qui Tam Relator, Plaintiff-Appellant, v. DANIEL, MANN, JOHNSON & MENDENHALL, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

355 F.3d 1140

UNITED STATES, ex rel. A. Amir ALI, under 31 U.S.C. Section 3729, Qui Tam Relator, Plaintiff-Appellant, v. DANIEL, MANN, JOHNSON & MENDENHALL, Defendants-Appellees.

No. 02-56432.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 3, 2003.

Filed January 20, 2004.

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Brian M. Brown, Law Offices of Brian M. Brown, Tustin, CA, for the plaintiffs-appellants.

Kathryn E. White and David C. Scheper, Winston & Strawn, Los Angeles, CA, for the defendants-appellees.

Steve Frank, U.S. Department of Justice, Civil Division, Washington, DC, for the amicus.

Appeal from the United States District Court for the Central District of California; Consuelo B. Marshall, Chief Judge, Presiding. D.C. No. CV-96-00116-CBM.

Before: HUG, B. FLETCHER, and WARDLAW, Circuit Judges.

BETTY B. FLETCHER, Circuit Judge:

A. Amir Ali ("Ali") challenges the district court's grant of summary judgment in favor of Daniel, Mann, Johnson & Mendenhall ("DMJM") in this qui tam action under the False Claims Act ("FCA"). Ali alleges that DMJM, acting as a construction management firm for the California State University at Northridge ("CSUN"), knowingly submitted false claims to the Federal Emergency Management Agency ("FEMA"). The district court held that the corporation was not subject to liability under the FCA because DMJM was acting as an agent of the state when it allegedly submitted false claims. We have jurisdiction under 28 U.S.C. § 1291, and we reverse and remand.

I. BACKGROUND

From February to September 1994, Ali was employed by CSUN as an architect coordinating the reconstruction of buildings damaged by the January 1994 Northridge earthquake.¹ CSUN retained DMJM as its construction management firm in December 1994, after CSUN terminated Ali's employment.

In January 1996, Ali filed a complaint in the Central District of California, alleging that CSUN and two CSUN officials filed false claims to FEMA for repairs not related to the Northridge earthquake. In May 2000, Ali amended the complaint to include allegations against DMJM. In June 2000, claims against CSUN and the CSUN officials were dismissed pursuant to the parties' joint stipulation. Therefore, the only remaining defendant is DMJM.

Ali alleges that he observed numerous FCA violations during his time at CSUN. Most importantly, as it relates to DMJM, Ali alleges that before the earthquake, the University Tower Apartments ("UTA") had been vacant for some time, and CSUN had no plans to reoccupy the building. Applicable FEMA regulations provided that buildings not in use at the time of the earthquake were ineligible for funding unless, prior to the disaster, the owner had an intent to reoccupy them within a reasonable time. 44 C.F.R. § 206.226(k)(2). In November 1993, the CSUN Foundation commissioned a study, dated December 15, 1993, by Coleman/Caskey Architects ("C/C Study") to determine the feasibility of reopening the UTA as student apartments. On December 16, 1993, CSUN voted against acting on the proposals contained in the C/C Study. Ali alleges that DMJM employees knowingly submitted a fraudulent Memorandum and a Letter (collectively, "Communications") to FEMA claiming that the C/C Study clearly indicated CSUN's intent to reoccupy the building.

In January 2001, the district court denied DMJM's motion to dismiss on the basis of immunity under Vermont Agency Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000). On June 21, 2002, the district court granted summary judgment for DMJM, holding that the undisputed facts demonstrate that DMJM employees were acting as agents of CSUN, and thus DMJM is entitled to immunity for actions within the scope of their official duties. Appellant timely filed an appeal to this Court on August 15, 2002. See 28 U.S.C. § 2107(b).

II. DISCUSSION

A. Standard of Review

The existence of sovereign immunity is a question of law reviewed de novo. Porter v. Jones, 319 F.3d 483, 489 (9th Cir.2003). The district court's grant of summary judgment is reviewed de novo. United States ex rel. Oliver v. Parsons Co., 195 F.3d 457, 461 (9th Cir.1999). We must determine, viewing the evidence in the light most favorable to the non-moving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. See Fed R. Civ. P. 56(c); Parsons Co., 195 F.3d at 461. We may affirm a grant of summary judgment on any ground supported by the record, even if not relied upon by the district court. Simo v. Union of Needletrades, 322 F.3d 602, 610 (9th Cir.2003).

B. Immunity under the FCA

The Supreme Court has held that states are not "persons" subject to qui tam liability under the FCA. Stevens, 529 U.S. at 780-88, 120 S.Ct. 1858. The Stevens Court did not reach the issue of sovereign immunity, construing the FCA to avoid that constitutional question. Id. at 787, 120 S.Ct. 1858. The Supreme Court did, however, rely on canons of statutory construction related to state sovereignty, such as (1) the presumption that the term "person" does not include the sovereign, id. at 780, 120 S.Ct. 1858; (2) the rule that Congress must clearly state its intention to subject states to liability, id. at 781-82, 787, 120 S.Ct. 1858; and (3) the presumption against imposition of punitive (treble) damages on governmental entities, id. at 784-85, 120 S.Ct. 1858. Relying on Stevens, we have held that "states and state agencies enjoy sovereign immunity from liability under the FCA." Bly-Magee v. California, 236 F.3d 1014, 1017 (9th Cir.2001) (citing Stevens without further analysis).

"Any person who," inter alia, "knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval" can be held liable under the FCA. 31 U.S.C. § 3729(a). DMJM, a private corporation, is a "person" under the FCA. See Cook County v. United States ex rel. Chandler, 538 U.S. 119, 123 S.Ct. 1239, 1244-49, 155 L.Ed.2d 247 (2003) (holding that municipal corporations, like other corporations, are "persons" under the FCA). Therefore, DMJM is subject to suit under the FCA unless it shares CSUN's sovereign immunity because of its relationship to CSUN. See Bly-Magee, 236 F.3d at 1017.

The district court held that the "DMJM employees Retamal and Duncan [who] allegedly violated the FCA" by writing the allegedly fraudulent Communications "were [acting] as agents and representatives of CSUN acting for the state within the scope of their official duties," and, therefore, DMJM is entitled to immunity for their actions. Thus, the district court treated the DMJM employees who allegedly undertook the fraudulent actions as if they were state employees and analyzed immunity as it applies to government officials.

The district court's analysis is in error. Ali sued DMJM, not individual DMJM employees Duncan and Retamal, who were working on the project. These employees were at no time employed by CSUN and were at all relevant times employed and paid by DMJM. Their on-site work managing the reconstruction of CSUN facilities under the supervision of CSUN officials does not transform Duncan and Retamal into government officials. Similarly, the fact that Ali's complaint states that DMJM was an agent of the University does not confer sovereign immunity on the corporation if it can be shown that the corporation or its employees knowingly submitted false claims to FEMA. Although the district court noted that there is "no evidence that DMJM employees acted for their own benefit," presumably DMJM received compensation for the $21 million reconstruction of UTA that it would not have received if FEMA had not funded the project. Although DMJM employees Duncan and Retamal were working on behalf of a state university, as employees of a private, for-profit contractor, they were not government officials for immunity purposes.²

The district court also relied on the independent contractor exception to federal government liability under the Federal Tort Claims Act ("FTCA") for torts committed by the federal government. The FTCA contains an explicit exception for contractors, such that the federal government is not liable for torts committed by its contractors. 28 U.S.C. §§ 1346(b), 2671. The courts use common law agency principles in tort to determine the scope of the "independent contractor exception" to the federal government's partial statutory waiver of sovereign immunity. See Logue v. United States, 412 U.S. 521, 526-27, 93 S.Ct. 2215, 37 L.Ed.2d 121 (1973). The district court concluded that Duncan and Retamal would not be considered independent contractors under the FTCA. The court reasoned that because the federal government could have been liable under the FTCA if CSUN were part of the federal government and Duncan or Retamal committed a tort, conversely, DMJM should receive sovereign immunity under the FCA for their actions.

Assuming arguendo that the DMJM employees assigned to CSUN would not be contractors under the FTCA, agency for tort liability has little bearing on sovereign immunity. The district court's analysis would lead to the surprising result that private corporate contractors acting on behalf of the state are immune from qui tam actions under the FCA, while local governments performing government functions are not. See Chandler, 538 U.S. at 119, 123 S.Ct. 1239. The test to determine whether an entity is entitled to sovereign immunity, described below, considers whether the entity performs government functions as one of five factors. See, e.g., Savage v. Glendale Union High Sch., 343 F.3d 1036, 1044 (9th Cir.2003) ("In analyzing this factor, we assess the extent to which the state exercises centralized governmental control over the entity...."). Thus, the extent of state control over the entity's work on behalf of the state is a factor,...