U.S. ex rel. Drake v. Norden Systems, Inc.

• Decision Date: 14 July 2004
• Docket Number: Docket No. 03-6152.
• Citation: 375 F.3d 248
• Parties: UNITED STATES of America, ex rel., Walter M. DRAKE, Plaintiff-Appellant, v. NORDEN SYSTEMS, INC., and United Technologies Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

375 F.3d 248

UNITED STATES of America, ex rel., Walter M. DRAKE, Plaintiff-Appellant, v. NORDEN SYSTEMS, INC., and United Technologies Corporation, Defendants-Appellees.

Docket No. 03-6152.

United States Court of Appeals, Second Circuit.

Argued March 8, 2004.

Decided July 14, 2004.

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John Doar, New York, New York (Eileen Minnefor, Doar Rieck & Mack, New York, New York, of counsel), for Plaintiff-Appellant.

Richard L. Beizer, Washington, D.C. (Brian C. Elmer, Jeffrey E. Greene, Crowell & Moring LLP, Washington, D.C., of counsel), for Defendants-Appellees.

Before: WALKER, Chief Judge, CARDAMONE, and KEITH^*, Circuit Judges.

CARDAMONE, Circuit Judge.

This appeal arises from the involuntary dismissal of plaintiff Walter M. Drake's (plaintiff or relator) civil action against a government defense contractor, defendant Norden Systems, Inc., now known as NSI, Inc. (Norden), and its corporate parent, defendant United Technologies Corporation (United Technologies). Drake, a Norden accountant, brought his action on behalf of the United States alleging that the defendants had made false claims for payment and otherwise defrauded the government in violation of the False Claims Act, 31 U.S.C. §§ 3729-3733 (2000). The allegations of the complaint, if they are proven, do not paint a pretty picture.

When Drake missed—by 17 months—a court-imposed deadline for amending his complaint, the United States District Court for the District of Connecticut (Burns, J.) dismissed the action for failure to prosecute. Drake appeals the judgment of dismissal, entered February 21, 2003, as well as the order on which it was based and a subsequent order denying his motion to be relieved from the judgment.

We do not doubt a district judge's authority to dismiss actions based on a plaintiff's failure to prosecute. Such authority is of ancient origin. Dismissal for want of prosecution could be imposed under the English common law if a plaintiff "suffer[ed] three terms to elapse without moving forward in the cause." 3 William Blackstone, Commentaries *451 (Univ. Chicago Press 1979) (1768). Today the district court's authority is expressly recognized in Federal Rule of Civil Procedure 41(b). See Link v. Wabash R.R. Co., 370 U.S. 626, 630, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962). Indeed, the involuntary dismissal is an important tool for preventing undue delays and avoiding docket congestion. See id. at 629-31, 82 S.Ct. 1386. But it is also one of the harshest sanctions at a trial court's disposal, since it usually extinguishes the plaintiff's cause of action and denies plaintiff his day in court. As a result, it is reserved for use only in the most extreme circumstances.

While we agree with the district court that Drake's 17-month delay was inexcusably long, we do not agree that the circumstances were sufficiently egregious or that Drake's actions were so contumacious as to warrant dismissal of his entire complaint. Thus, we hold it was an abuse of the district court's discretion to dismiss plaintiff's complaint.

BACKGROUND

A. The False Claims Act

The False Claims Act (Act) imposes civil liability on "[a]ny person" 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 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;

...

(7) 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). The defendant is liable for treble damages, in other words, three times the amount of damages the government sustained on account of defendant's actions, and a civil penalty of up to $10,000 for each claim. Id.

The Act contains a so-called qui tam provision, which empowers private persons — called relators — to sue false claimants on behalf of the government. See 31 U.S.C. § 3730(b). The qui tam form of action appears to have existed in England since the late 13th century. See Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 768 n. 1, 774-78, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000) (discussing the etymology and history of the qui tam action). Blackstone described it and its consequences. See 3 William Blackstone, Commentaries *160. The action has been recognized in American jurisprudence since the earliest days of our republic. See Vt. Agency of Natural Res., 529 U.S. at 776-77, 120 S.Ct. 1858.

A relator commences a false claim action by filing the complaint under seal and giving the government an opportunity to intervene. See 31 U.S.C. § 3730(b). The government has an initial period of 60 days to intervene but it may move the court for an extension of time. See id. If the government chooses not to intervene, the relator may proceed with the action on the government's behalf. See id. at § 3730(c)(3). In either case, the relator will be entitled to a percentage of any award recovered. See id. at § 3739(d).

B. Drake's Complaint

Plaintiff commenced his qui tam action on June 14, 1994 alleging that he had uncovered a number of False Claims Act violations committed by defendants. He filed the complaint under seal in accordance with the above procedures. The government investigated the matter for three years and, finally, on June 2, 1997, declined to intervene. The complaint was then unsealed, served on defendants Norden and United Technologies, and later amended twice. Drake filed his second amended complaint on December 17, 1997.

He based his claims on billing and accounting practices that he uncovered as supervisor of facilities accounting in Norden's finance department. Plaintiff's claims are divided into four counts — two against Norden alone, one against United Technologies alone, and one against Norden and United Technologies together.

Count 1 asserts Norden violated 31 U.S.C. § 3729(a)(1) and (a)(2) by knowingly presenting the United States with false claims for payment and backing up these claims with false records or statements. According to Drake, these claims, records, and statements were contained in the following categories of documents that Norden transmitted to the government: (1) progress bills, (2) certificates of indirect cost rates, (3) disclosure statements, (4) contracts, and (5) "Present Responsibility Reports." Drake alleges Norden's claims were false because they included: (a) unallowable property tax costs, (b) the depreciation costs of assets that either did not exist, had been sold or written off, or were unrelated to government contracts, (c) the depreciation costs of assets that were not capitalized according to Norden's written policy, and (d) certain costs that were inaccurately categorized as relating to research and development.

Count 2 asserts Norden violated 31 U.S.C. §§ 3729(a)(7) and (a)(2) by making false statements to conceal an obligation to repay money to the United States. Count 3 makes the same assertion against United Technologies. As with the statements alleged in Count 1, Drake alleges the false statements on which Counts 2 and 3 are based were contained in: (1) progress bills, (2) certificates of indirect cost rates, (3) disclosure statements, (4) contracts, and (5) "Present Responsibility Reports."

Count 4 asserts Norden and United Technologies conspired, in violation of 31 U.S.C. § 3729(a)(3), to defraud the United States by getting a false claim allowed or paid. According to Drake, this occurred after he brought Norden's improper accounting practices to United Technologies' attention. Instead of rectifying the situation, United Technologies allegedly entered into an unlawful understanding and agreement with Norden to conceal the misconduct and allow Norden to continue defrauding the government.

C. District Court's August 24, 2000 Ruling

On January 27, 1998 defendants moved to dismiss the second amended complaint for failure to state a claim on which relief could be granted and for failure to plead fraud with sufficient specificity. Before the district court ruled on this motion, however, it stayed the case for six months in order to await a Supreme Court ruling in another case deciding whether False Claims Act relators have standing. Once the Supreme Court answered that question in the affirmative, see Vt. Agency of Natural Res., 529 U.S. at 771-78, 120 S.Ct. 1858, the trial court proceeded to consider defendants' motion to dismiss, and rendered its decision on August 24, 2000.

With respect to the claims against Norden in Counts 1 and 2, the court granted the motion in part and denied it in part. It held that only the progress bills constituted claims for the purpose of subsection (a)(1), and that only the progress bills and certificates of indirect cost rates constituted records or statements for the purposes of subsections (a)(2) and (a)(7). To the extent that the § 3729(a)(1), (a)(2), & (a)(7) claims relied on these documents, the court denied the motion to dismiss. To the extent the claims relied on other documents — i.e., disclosure statements, contracts, and "Present Responsibility Reports" — the district court dismissed these claims with prejudice.

It also held that Drake's allegations of Norden's improper research and development charges were insufficiently specific to support his causes of action. To the extent that Drake's § 3729(a)(1), (a)(2), & (a)(7) claims relied on these charges, the trial court dismissed those claims without prejudice. Other than above specified, it held Counts 1 and 2 adequately stated claims against Norden for violations of § 3729(a)(1), (a)(2) & (a)(7).

The trial court dismissed entirely Drake's Count 3 claim...