Gunderson v. Envirocare Of Utah Inc.

• Decision Date: 04 August 2010
• Docket Number: No. 09-4079.,09-4079.
• Parties: UNITED STATES of America, ex rel. Jolene LEMMON, as personal representative of the estate of Roger Lemmon, Plaintiff-Appellant, Patrick Cole; Kyle Gunderson, Plaintiffs, v. ENVIROCARE OF UTAH, INC., Defendant-Appellee. United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

614 F.3d 1163

UNITED STATES of America, ex rel. Jolene LEMMON, as personal representative of the estate of Roger Lemmon, Plaintiff-Appellant,

Patrick Cole; Kyle Gunderson, Plaintiffs,

v.ENVIROCARE OF UTAH, INC., Defendant-Appellee.

United States of America, Amicus Curiae.

No. 09-4079.

United States Court of Appeals,Tenth Circuit.

Aug. 4, 2010.

COPYRIGHT MATERIAL OMITTED.

Charles W. Scarborough (and Michael S. Raab, Attorneys, Appellate Staff, Civil Division, Department of Justice; Tony West, Assistant Attorney General; Brett L. Tolman, United States Attorney, on the brief), Washington, D.C., for Amicus Curiae.

Jeffrey W. Appel, (Janelle P. Eurick and Maria E. Heckel of Ray, Quinney & Nebeker, P.C.; Jeffrey D. Eisenberg and Steve Russell of Eisenberg & Gilchrist; Richard D. Burbidge of Burbidge, Mitchell & Gross, on the briefs), Salt Lake City, UT, for Plaintiff-Appellant.

Rodney G. Snow (Neil A. Kaplan, Walter A. Romney, Jr., and Christopher B. Snow of Clyde, Snow & Sessions, on the brief), Salt Lake City, UT, for Defendant-Appellee.

Before KELLY, O'BRIEN, and HOLMES, Circuit Judges.

PAUL KELLY, JR., Circuit Judge.

Plaintiff-Appellant Jolene Lemmon appeals from the district court's dismissal with prejudice of her complaint alleging false claims against the government. See Aplt.App. 705. The district court dismissed under Rules 8(a), 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. She contends that the district court overlooked her implied-certification (of false claims) theory and erred in rejecting her express-certification theory. Our jurisdiction arises under 28 U.S.C. § 1291 and we reverse.

Background

Brought under the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1) and (2), this suit involves qui tam claims against Defendant-Appellee Envirocare of Utah, Inc. (“Envirocare”) ¹ by one of its former employees ² and two former employees of an Envirocare subcontractor (“Plaintiffs”). Aplt.App. at 452-54. The suit arises from Envirocare's hazardous-and-radioactive-waste-disposal contracts with the federal government (“government”). Id. at 452-56. Plaintiffs allege that, between June 2000 and June 2001, Envirocare repeatedly violated its contractual and regulatory obligations by improperly disposing of the contracted-for waste. Id. at 468-86. In spite of these violations, Plaintiffs contend, Envirocare falsely represented to the government that it had fulfilled its obligations and, based on its false representations, improperly received payment from the government. Id. at 462-64, 486-87.

Specifically, Plaintiffs' claims allege that they observed and-at the direction of Envirocare superiors-participated in Envirocare's improper disposal of waste. Id. at 464-65. Plaintiffs allege that Envirocare's government contracts required it to “receive and dispose of the contaminated materials in accordance with all applicable, relevant and appropriate federal, state and local regulations....” Id. at 457. The contracts further obligated Envirocare to, inter alia, (1) periodically submit written reports detailing its receipt and disposal of waste, (2) submit follow-up reports detailing any problems encountered, (3) maintain records sufficient to allow the government to confirm compliance with the contractual provisions, (4) report all contractual violations to the government, and (5) provide and maintain an inspection system for government review. Id. at 457-61.

Plaintiffs assert that Envirocare breached its obligations by, inter alia, (1) ignoring its reporting, recording, regulatory, and maintenance requirements, (2) violating the contractual and regulatory disposal requirements pertaining to location and size of buried debris, (3) violating the contractual and regulatory disposal requirements pertaining to exposed waste materials, (4) failing to remediate and report waste spills, (5) disposing of waste without proper work orders, (6) violating disposal requirements regarding the construction and maintenance of waste-containing cells, and (7) failing to report the improper mixing of waste. Id. at 462-86.

According to Plaintiffs, Envirocare expressly and impliedly certified fulfillment of its obligations by submitting payment requests to the government. Id. at 462, 487. These requests, which the government paid in full, form the basis of Plaintiffs' third amended complaint.

That complaint was filed after three complaints were dismissed without prejudice and with leave to file an amended complaint. In the last of these preceding dismissals, the district court provided an extensive analysis of the deficiencies of Plaintiffs' (second amended) complaint and gave guidance for filing legally sufficient claims. See Aplt.App. at 400-50.

Responding to the district court's analysis, Plaintiffs filed the third amended complaint. At 37 pages, it was more than 100 pages shorter and contained over 700 fewer averments than the second. Compare Aplt.App. 451-87 (third amended complaint) with Aplt.App. 24-173 (second amended complaint). It contained only a handful of claims-as opposed to 67 before-and added substantial factual allegations. It also omitted the § 3729(a)(7) claim, which the district court had dismissed for failure to state a claim. See id. at 413-22.

Nonetheless, the district court dismissed the third amended complaint with prejudice in a two-page order. Aplt.App. 703- 04. The order stated that the dismissal was “[f]or substantially the same reasons” set forth in the prior opinion and order dismissing the second amended complaint. Id. In relying on its prior opinion, the district court did not note the obvious and critical differences between the third and second amended complaints. See id. Most notably, the court made no mention of the replacement of the § 3729(a)(7) claim with implied-false-certification claims under § 3729(a)(2). Id. Indeed, the implied-false-certification claims appear to have gone unnoticed. Id. Instead, the court stated that Plaintiffs “may well have pleaded various regulatory violations,” but because Plaintiffs did not “allege that [the regulations] require complete regulatory compliance before certification for payment,” Plaintiffs failed to “tie[ ] those allegations to an identifiable, plausible ‘false claim’ within the meaning of the False Claims Act.” Id. at 704.

Discussion

We review the district court's dismissal under Rule 12(b)(6) de novo. United States ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir.2008). Under 12(b)(6), we review for plausibility, specifically whether enough facts have been pled to state a plausible claim. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Concerning the failure to plead fraud with particularity under Rule 9(b), we also review a dismissal de novo. United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 45 (1st Cir.2009) (de novo standard applies to claims under § 3729(a)(1) or (2)). Finally, Rule 8(a) dismissals are reviewed for an abuse of discretion, but to overcome a motion to dismiss, a plaintiff's allegations must move from conceivable to plausible. See Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1950-51, 173 L.Ed.2d 868 (2009); Nasious v. Two Unknown B.I.C.E. Agents, 492 F.3d 1158, 1161-62 (10th Cir.2007).

Before turning to the sufficiency of Plaintiffs' allegations, we review the statutory basis of their claims.

A. Implied and Express False Certification Claims

Plaintiffs' third amended complaint asserts claims under § 3729(a)(1) and (2) of the False Claims Act. ³ The FCA “covers all fraudulent attempts to cause the government to pay out sums of money.” Conner, 543 F.3d at 1217 (quoting United States ex rel. Boothe v. Sun Healthcare Grp., Inc., 496 F.3d 1169, 1172 (10th Cir.2007)). Its qui tam provisions allow an individual to sue on behalf of the government. 31 U.S.C. § 3730(b). Though the government may intervene and take over a private plaintiff's case, id. § 3730(b)(2) and (c)(3), it often declines to do so. In such instances, the private plaintiff, termed a “relator,” conducts the litigation and shares any recovery with the government. Id. § 3730(d).

Section 3729(a)(1) imposes civil liability when a person “knowingly presents, or causes to be presented” to the Government “a false or fraudulent claim for payment or approval....” Section 3729(a)(2) renders a party liable for “knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government....” Violation of these provisions subjects a party to treble damages and civil penalties. Id. § 3729(a).

Under § 3729(a), liability can attach when a government payee submits either a legally or factually false request for payment. Claims arising from factually false requests generally require a showing that the payee has submitted “ ‘an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.’ ” Conner, 543 F.3d at 1217 (quoting Mikes v. Straus, 274 F.3d 687, 697 (2d Cir.2001)). Claims arising from legally false requests, on the other hand, generally require knowingly false certification of compliance with a regulation or contractual provision as a condition of payment. See id.

Plaintiffs' suit rests on allegations of legal falsity-that Envirocare falsely certified compliance with, inter alia, the terms of its government contracts in seeking payment. Plaintiffs allege both that Envirocare violated a variety of state and federal regulations and that, in doing so, it violated its contractual obligations to the government. ⁴ See, e.g., Aplt.App. at 452, 486.

Plaintiffs assert claims under the FCA based on both implied and express false-certification theories. See, e.g., Aplt.App. at 458-66; see Conner, 543 F.3d at 1217; Shaw v. AAA Eng'g & Drafting Inc., 213 F.3d 519, 531 (10th Cir.2000) (recognizing that, in light of the FCA's language,...