U.S. ex rel. Bain v. Georgia Gulf Corp.

• Decision Date: 27 September 2004
• Docket Number: No. 03-30023.,03-30023.
• Citation: 386 F.3d 648
• Parties: UNITED STATES of America, ex rel. Ronald K. BAIN, Plaintiffs-Appellees, v. GEORGIA GULF CORP., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

386 F.3d 648

UNITED STATES of America, ex rel. Ronald K. BAIN, Plaintiffs-Appellees, v. GEORGIA GULF CORP., Defendant-Appellant.

No. 03-30023.

United States Court of Appeals, Fifth Circuit.

September 27, 2004.

COPYRIGHT MATERIAL OMITTED

David Lawrence Bateman (argued), Law Office of David L. Bateman, Baton Rouge, LA, for Plaintiff-Appellee.

Luis A. Leitzelar (argued), Murphy J. Foster, III, Breazeale, Sachse & Wilson, Baton Rouge, LA, for Defendant-Appellant.

Edward Himmelfarb, Douglas N. Letter, Michael D. Granston (argued), U.S. Dept. of Justice, Civ. Div.-App. Staff, Washington, DC, for U.S., Amicus Curiae.

Appeal from the United States District Court for the Middle District of Louisiana.

Before GARWOOD, HIGGINBOTHAM and SMITH, Circuit Judges.

GARWOOD, Circuit Judge:

Defendant-appellant Georgia Gulf Corporation (Georgia Gulf) brings this appeal under 28 U.S.C. § 1292(b) challenging the district court's denial of its 12(b)(6) motion to dismiss and alternative Rule 56 motion for summary judgment, as well as the district court's ruling that plaintiff-relator-appellee Ronald K. Bain (Bain) stated a claim under the False Claims Act (FCA), 31 U.S.C. § 3729(a)(7), and that he pleaded his claim under that statute with sufficient particularity as required by Federal Rule of Civil Procedure 9(b). We reverse and remand this case for further proceedings.

Facts and Proceedings Below

This is a qui tam action under the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., filed by plaintiff-relator Bain on July 13, 2001. The government declined to intervene on November 8, 2001, and the district court unsealed the complaint and ordered it served on Georgia Gulf. The case is now before this court on the defendant Georgia Gulf's interlocutory appeal from the district court's order denying Georgia Gulf's motion to dismiss the complaint under FED.R.CIV.P. 12(b)(6) (and 9(b)).

Bain began his employment with Georgia Gulf in Plaquemine, Louisiana in 1982. One of the primary products manufactured by Georgia Gulf at its chemical facility in Plaquemine is polyvinyl chloride (PVC), which is a known carcinogen. The PVC is produced in eighteen reactors which must be routinely opened in order to conduct physical inspections. When the reactors are opened, vinyl chloride is released into the atmosphere. This is known as "open lid loss." The complaint alleges that "[p]ursuant to the laws of the United States of America and the State of Louisiana, including the rules and regulations of and permits issued by the Louisiana Department of Environmental Quality (`LDEQ') and the Environmental Protection Agency (`EPA'), Georgia Gulf is required to monitor and report emissions of vinyl chloride which occur during the production of PVC."

The complaint states that Bain was transferred "in late 1994 or early 1995" to the PVC unit to work as a "top deck operator." His responsibilities included monitoring and measuring releases of vinyl chloride during open lid losses and then recording the amount of each release into the "open lid loss logs." These logs were then submitted to the Environmental Protection Agency (EPA) and the Louisiana Department of Environmental Quality (LDEQ).

The complaint alleges that "[w]hen relator commenced employment as a top deck operator in the PVC unit he learned" that it was Georgia Gulf's "standard operating procedure" to vent vinyl chloride into the atmosphere without monitoring or measuring the releases and then to make false records of the emissions during open lid loss. They in turn allegedly routinely and knowingly submitted these false records to the EPA and LDEQ. The complaint alleges in general terms that this practice "was in contravention of 31 U.S.C. § 3729(a)(7)," the reverse false claims provision of the FCA, because "the actions of Georgia Gulf have deprived the United States of America and State of Louisiana of fines, and other monetary assessments which would have been made had the actions of Georgia Gulf not been concealed."

On April 22, 2002, Georgia Gulf moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), but on June 19, 2002, the district court ordered that Bain first amend his complaint to comply with Rule 9(b), and gave him twenty days in which to do so.¹ Accordingly, Bain filed an amended complaint on July 10, 2002 that (a) added miscellaneous allegations related to his section 3729(a)(7) reverse false claim concerning avoidance of fines for excessive vinyl chloride emissions during open lid loss by making false records of such emissions;² and (b) added an entirely new claim, namely one for a direct false claim of acquiring "Emission Reduction Credits (ERC's)" by false reporting of vinyl chloride emissions, as follows:

"At all material times herein, Georgia Gulf Corporation was entitled to and, on information and belief, did participate in the Emission Reduction Credit Banking program established and operated by the Louisiana Department of Environmental Quality. Further, on information and belief, Georgia Gulf obtained Emission Reduction Credits (`ERC's') based on its reports of emissions of vinyl chloride from the polyvinyl chloride unit."

...

"On information and belief, the submission of false and fraudulent records by Georgia Gulf of vinyl chloride emissions from the polyvinyl chloride unit allowed Georgia Gulf to obtain ERC's which are a thing of value and could be used by Georgia Gulf or transferred to another person or company in exchange for consideration."

On September 3, 2002, no further motions, pleadings or briefs having been filed after Bain's July 10, 2002 amended complaint, the district court denied defendant's April 22, 2002 motion to dismiss, stating that Bain had adequately alleged that Georgia Gulf's submission of false records and documents had "prevented the Government from collecting the penalties it would have received had the records and documents been accurate." The court held that, assuming the truth of the allegations, this conduct would fall within the reverse False Claims Act because "the making of false or fraudulent records prepared by the defendant would allow Georgia Gulf to `avoid' an `obligation to pay' what the Government would have received had Georgia Gulf submitted accurate records." The district court's order did not address Bain's direct false claim concerning Emission Reduction Credits which was added by his July amended complaint and was not addressed by Georgia Gulf's April motion to dismiss.

Georgia Gulf on September 17, 2002, filed a motion to reconsider, and in the alternative, a Rule 56 motion for summary judgment. On September 19, 2002, the district court denied Georgia Gulf's motion for reconsideration respecting its 12(b)(6) motion, and ordered the parties to conduct discovery. Plaintiff then filed an ex parte motion to clarify the ruling confirming that the district court had dismissed the summary judgment motion. The district court ruled that to the extent Georgia Gulf was filing a motion for summary judgment, it failed to comply with the Rule 56 procedures and therefore the motion was denied without prejudice.

On October 25, 2002, the district court stayed these proceedings pending a decision by this court in a similar case, United States, ex rel. John Doe v. Dow Chemical Co., 343 F.3d 325 (5th Cir.2003) (Dow), which had been decided by another district court, and which was "directly opposite the decision rendered by this Court in this case on the same issue." The district court certified the order for interlocutory appeal, and Georgia Gulf filed a petition for permission to appeal the district court's orders of September 3 and 19, 2002. On January 7, 2003, this court granted leave to appeal from the interlocutory orders of the district court.

On August 14, 2003, this court decided Dow without reaching the issue of whether the complaint stated a claim under the FCA.³

Discussion

1. The Reverse False Claims Act

Under the FCA, the government, or a party suing on its behalf, may recover for false claims made by the defendant to secure a payment by the government. Under the reverse False Claims Act subsection, a plaintiff may recover against "any person who ... 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)(7) (2002). In a reverse false claims suit, the defendant's action does not result in improper payment by the government to the defendant, but instead results in no payment to the government when a payment is obligated.

2. Plaintiff's amended complaint did not state a claim under the Reverse False Claims Act.

Bain based his section 3729(a)(7) complaint on allegations that Georgia Gulf concealed from the government the fact that it had falsified emissions records in an effort to avoid a fine or monetary penalty to which the company might have been subjected if the government had known of the illegal emissions and had then decided to take action against Georgia Gulf. The district court held that Bain's complaint stated a cause of action under the reverse False Claims Act. We disagree.

Bain argues on appeal that Georgia Gulf's obligations under the reverse FCA are based on its environmental permits, specifically those which incorporate provisions of the Clean Air Act (CAA), 42 U.S.C. § 7401 et seq. The CAA requires the EPA to establish regulations for "air quality standards." Section 7410 requires each state to develop an implementation plan (SIP) that describes the manner in which the state will achieve the national minimum standards on air pollution. The LDEQ was established to ensure Louisiana's compliance with environmental regulations, including the air quality mandates. See La. R.S. 30:2011. LDEQ issues permits which impose limits on the quantities of air pollution that a source can emit. La. Admin. Code 33:III § 507.

Under 42 U.S.C §...