Armenta ex rel. City of Burbank v. Mueller

• Decision Date: 30 August 2006
• Docket Number: No. B175530.,B175530.
• Citation: 142 Cal.App.4th 636,47 Cal.Rptr.3d 832
• Court: California Court of Appeals Court of Appeals
• Parties: Nora ARMENTA ex rel. CITY OF BURBANK et al., Plaintiffs and Appellants, v. MUELLER CO. et al., Defendants and Respondents.

47 Cal.Rptr.3d 832

142 Cal.App.4th 636

Nora ARMENTA ex rel. CITY OF BURBANK et al., Plaintiffs and Appellants, v. MUELLER CO. et al., Defendants and Respondents.

No. B175530.

Court of Appeal, Second District, Division 1.

August 30, 2006.

As Modified September 1, 2006.

Irell & Manella, Gregory R. Smith, S. Thomas Pollack, Mark Paluch, Los Angeles; Phillips & Cohen, Eric R. Havian and Harry Litman, San Francisco, for Plaintiffs and Appellants.

Beck, DeCorso, Daly, Kreindler & Harris, Bryan D. Daly, Charles L. Kreindler, Barbara E. Taylor, Los Angeles; Stanzler, Funderburk & Castellon and Ruben A. Castellon, San Francisco, for Defendants and Respondents Mueller Co. and Tyco International (US) Inc.

Weston, Benshoof, Rochefort, Rubalcava & MacCuish, David S. MacCuish, Kurt V. Osenbaugh and Andrew M Gilford, Los Angeles, for Defendant and Respondent Watts Industries, Inc.

SPENCER, P.J.

INTRODUCTION

Qui tam¹ plaintiff Nora Armenta (Armenta), the City of Burbank, the City of Pomona and the Alameda County Water District appeal from summary judgments entered in favor of defendants Mueller Co. (Mueller) and Tyco International (US) Inc. (Tyco). Armenta challenges the propriety of revoking the court's grant of leave to file her second amended complaint, arguing that the trial court abused its discretion in imposing and enforcing an unfair condition upon Armenta's ab lity to file her second amended complaint, which alleges the violation of the California False Claims Act (CFCA) (Gov Code, § 12650 et seq.)² with respect to an additional 130 governmental entities. All of the plaintiffs attack the summary judgments, contending that they raised triable issues of material fact regarding Mueller's and Tyco's liability for violation of the CFCA.

We agree that the trial court abused its discretion in conditioning leave to amend and that the abuse requires reversal of the subsequent order partially revoking the court's grant of leave to amend. We further agree that the summary judgments must be reversed, in that triable issues of fact exist as to Mueller's and Tyco's liability.

FACTUAL BACKGROUND³

James Jones Company (Jones) and its parent companies, Mueller, Tyco and Watts Industries, Inc. (Watts), "manufacture and supply pipes and other water distribution parts." They sell these parts "directly to municipalities for carrying drinking water or to contractors for eventual use in municipal water systems." (City of Pomona v. Superior Court, supra, 89 Cal.App.4th at p. 797, 107 Cal.Rptr.2d 710.) Each of the governmental entities named in the second amended complaint requires that vendors provide water system components fabricated of bronze which conform to or exceed the standards of the American Water Works Association (AWWA). (Second Amended Complaint, pars. 14, 70.)

Jones's catalogues and sales literature represented that all of the pipes, valves, ball valves, stops and fittings which it offered for sale did conform to AWWA standards. "AWWA Standard C-800-89" requires that all bronze parts coming into contact with drinking water "contain 85 percent copper and 5 percent each of tin, lead and zinc," a mix commonly known as 85 metal. (City of Pomona v. Superior Court, supra, 89 Cal.App.4th at pp. 797-798, 107 Cal.Rptr.2d 710.) Those parts include valves, which control the flow of water from the main water line to a residence; balls, the component of a valve which either blocks or permits the flow of water through the valve; saddles; and compression nuts. (Second Amended Complaint, par. 14.) "AWWA imposes this standard `[b]ecause of the potential for corrosion of high-zinc brasses.'" (City of Pomona, supra, at p. 797, 107 Cal.Rptr.2d 710.)

Jones's catalogues and sales literature emphasize the value of 85 metal in resisting corrosion. They represent that "Jones's products are made of 85 metal `for long, long, life,' `to insure long life in the harshest soils,' or `for corrosion protection.'" (City of Pomona v. Superior Court, supra, 89 Cal.App.4th at p. 798, 107 Cal.Rptr.2d 710.) "These statements are patently false." (Second Amended Complaint, par. 15.)

Jones circulated to all potential customers, including governmental entities, and to distributors through whom Jones sold its products, catalogues offering its parts for sale. It did so with the expectation that Jones's potential customers would refer to, and rely upon, the catalogues when they ordered parts to be used in water distribution. (City of Pomona v. Superior Court, supra, 89 Cal.App.4th at p. 798, 107 Cal.Rptr.2d 710.) It is Armenta's information and belief that during the 10 years preceding 1998, Jones disseminated its false catalogue statements to each California political subdivision which purchased, directly or through distributors, Jones parts coming into contact with drinking water. (Second Amended Complaint, pars. 6, 65.)

In August 1991, Jones's president instructed Armenta, who then was Jones's purchasing manager, to purchase "raw metal with less copper and more lead or zinc. Jones manufactured and sold pipes and valves using 81 metal [comprised of 81 percent copper, 9 percent zinc, 3 percent tin and 7 percent lead] rather than 85 metal as it continued to represent in its catalogues and sales materials that the pipes and other parts either complied with AWWA standards or were made of 85 metal. Jones also manufactured or purchased from suppliers certain sizes of balls for valves made from 360 metal [comprised of 60 percent copper and 40 percent zinc, which corrodes approximately five times faster than 85 metal] while continuing to represent that these parts were made of 85 metal." (City of Pomona v. Superior Court, supra, 89 Cal.App.4th at pp. 798, 799, 107 Cal.Rptr.2d 710; Second Amended Complaint, pars. 20, 22, 23.)

Armenta expressed concerns about the balls' zinc content repeatedly. On each occasion, however, Jones' employees told her it was not a matter about which she should be concerned. (Second Amended Complaint, par. 21.)

Jones shipped to California customers valve balls that were made of 81 metal. It falsely certified to its customers that these valve balls were made of 85 metal. Jones shipped many other 81 metal parts to California governmental entities, knowing that AWWA standards required them to be made of 85 metal, and representing that they were. These parts included thousands of saddles. Each shipment invoice consequently presented a false claim. (Second Amended Complaint, pars. 31-43.)

Jones acquires the many parts comprising the finished products it sells to its water works customers in two ways: through manufacture or through purchase. "It purchased parts from its suppliers knowing that those parts were made of substandard metal, and it manufactured parts at its foundry from substandard metal." Jones then sold those parts to governmental entities while fasely certifying that they were made of conforming metal. (Second Amended Complaint, pars. 16, 44-55.)

DISCUSSION

1. The Appeal is Timely

Defendants argue that plaintiff Armenta's appeal is untimely insofar as it challenges the partial denial of her motion to file a second amended complaint, in that the order of denial, as defendants characterize the order partially revoking the court's grant of leave to amend, was appealable when rendered. They are mistaken.

A qui tam action differs from other actions. The governmental entity on behalf of which a qui tam plaintiff sues under the CFCA does not become a party to the suit unless and until the entity intervenes in the action. (Cf. U.S. ex rel. Mayfield v. Lockheed Martin Engin. (S.D.Tex.2002) 186 F.Supp.2d 711, 714, fn. 1; U.S. ex rel. Farrell v. SKF, USA, Inc. (W.D.N.Y.1999) 32 F.Supp.2d 617, 618.) The qui tam plaintiff does not act solely as a representative for governmental entities which do not intervene, however.

The CFCA authorizes an individual to bring suit for a violation of the act not only on behalf of a defrauded governmental entity but in her own right as well. (§ 12652, subd. (c)(1).) In essence, the act makes a limited, conditional, partial assignment of the governmental entities' cause of action to the qui tam plaintiff, or relator, who brings suit. (In re Schimmels (9th Cir. 1997) 127 F.3d 875, 884; see also Vermont Agency of Natural Resources v. United States ex rel. Stevens (2000) 529 U.S. 765, 773, 120 S.Ct. 1858, 146 L.Ed.2d 836.) The result is that once a qui tam plaintiff brings suit based on a heretofore unknown governmental fraud, no other person may pursue a related action, i.e., an action on behalf of a different governmental entity, if the facts, or "material elements of fraud," in the related action are the same. (§ 12652, subd. (c)(10); Grynberg v. Koch Gateway Pipeline Co. (10th Cir.2004) 390 F.3d 1276, 1279-1280; U.S. ex rel. Hampton v. Columbia/HCA Healthcare (D.C.Cir.2003) 318 F.3d 214, 218.)

In short, Armenta has a personal stake in the action beyond her representative stake. It is not only the governmental entities on behalf of which she sues who will recover damages but Armenta as well. (§ 12652, subds.(g)(2), (g)(3).) The order partially revoking the court's grant of Armenta's motion for leave to file her second amended complaint therefore did not resolve all causes of action between Armenta and the defendants, and was not appealable when rendered. (Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 743, 29 Cal.Rptr.2d 804, 872 P.2d 143.) Inasmuch as the summary judgments entered in favor of Mueller and Tyco dispose of all claims against them, however, we may consider the propriety of the revocation order upon review of the judgments.

2. The Trial Court Abused Its Discretion in Revoking Armenta's Leave to File Her Second Amended Complaint

The trial court initially granted Armenta's motion for leave to amend her complaint conditioned upon the 130 newly-named governmental entities responding to discovery propounded by defendants. When 47 of these entities either failed or refused to...