U.S. ex rel. Sanders v. North American Bus

• Decision Date: 05 November 2008
• Docket Number: No. 07-1773.,07-1773.
• Citation: 546 F.3d 288
• Parties: UNITED STATES of America ex rel. Thornton G. SANDERS, Plaintiff-Appellant, v. NORTH AMERICAN BUS INDUSTRIES, INCORPORATED; Deloitte & Touche USA, LLP; North American Bus Industries Kft., Defendants-Appellees, and North American Bus Industries, Rt.; American Ikarus; Peter Z. Rona; The First Hungary Fund, Defendants. Taxpayers Against Fraud Education Fund, Amicus Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

546 F.3d 288

UNITED STATES of America ex rel. Thornton G. SANDERS, Plaintiff-Appellant, v. NORTH AMERICAN BUS INDUSTRIES, INCORPORATED; Deloitte & Touche USA, LLP; North American Bus Industries Kft., Defendants-Appellees, and North American Bus Industries, Rt.; American Ikarus; Peter Z. Rona; The First Hungary Fund, Defendants.

Taxpayers Against Fraud Education Fund, Amicus Supporting Appellant.

No. 07-1773.

United States Court of Appeals, Fourth Circuit.

Argued: September 24, 2008.

Decided: November 5, 2008.

ARGUED: Joseph A. Black, Cullen Law Firm, P.L.L.C., Washington, D.C., for

Appellant. James Patrick Ulwick, Kramon & Graham, Baltimore, Maryland; Amelia Toy Rudolph, Sutherland, Asbill & Brennan, Atlanta, Georgia, for Appellees. ON BRIEF: Daniel E. Cohen, Cullen Law Firm, P.L.L.C., Washington, D.C., for Appellant. Melissa H. Maxman, Baker & Hostetler, L.L.P., Washington, D.C., for Appellees North American Bus Industries, Incorporated and North American Bus Industries, Kft. Mike Bothwell, Sara Vann, Bothwell & Harris, P.C., Roswell, Georgia; James W. Moorman, Joseph E.B. White, Taxpayers Against Fraud Education Fund, Washington, D.C., for Amicus Supporting Appellant.

Before WILKINSON, Circuit Judge, HAMILTON, Senior Circuit Judge, and JAMES C. CACHERIS, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Senior Judge HAMILTON and Senior Judge CACHERIS joined.

OPINION

WILKINSON, Circuit Judge:

This appeal arises from a qui tam action under the False Claims Act brought by Thornton G. Sanders against his former employer, North American Bus Industries, Inc. ("NABI"). Sanders alleges that NABI defrauded the United States by underpaying duties on bus frames that NABI imported from Hungary and by falsely certifying that the buses that NABI manufactured using those frames were eligible for federal "Buy America" subsidies. Sanders also alleges that Deloitte & Touche USA, LLP, participated in NABI's fraud.

The district court rejected all of Sanders's claims on various grounds. Sanders now challenges each of those dismissals, asserting myriad defects of both fact and law. We agree, however, with the district court that plaintiff has failed to establish the necessary elements of an FCA claim. We thus affirm the judgment.

I.

A.

NABI is an Alabama corporation that manufactures and sells transit buses. The manufacturing process occurs in stages. First, the bus frames, or "shells," are constructed by NABI's corporate parent, North American Bus Industries, Kft. ("NABI Hungary"). NABI Hungary then ships the shells to NABI's headquarters in Alabama. The shipments include a number of components, like the wheels, some of which are fixed permanently to the shells prior to shipment. NABI then completes the assembly, using both the shipped components and additional American-made parts.

NABI distributes the completed buses to municipalities and transit authorities throughout the United States. The federal government subsidizes these local entities for purchases of buses that meet federal "Buy America" requirements. See 49 U.S.C. § 5323(j); 49 C.F.R. §§ 661.1-.21. Local entities receiving subsidies require NABI to certify that its buses satisfy the Buy America provisions. In particular, NABI must certify that more than sixty percent of the components in its completed buses (by cost) are produced in the United States.

The bus shells and components that NABI imports from its Hungarian parent are taxed according to the Harmonized Tariff Schedule of the United States ("HTSUS"), which provides the various classifications and corresponding rates of duty for imported merchandise. See 19 U.S.C. § 1202. Prior to June 1998 NABI's bus shells were classified under the HTSUS subheading for "Bodies (including cabs), for . . . motor vehicles." HTSUS subheading 8707.90.50. That classification carried a duty of four percent of the value of the imported bus shells and components.

In June 1998, NABI hired Damon Pike, a director at Deloitte, to file a protest on NABI's behalf with the U.S. Customs Service (currently U.S. Customs and Border Protection). See 19 U.S.C. § 1514 (Customs protests); 19 C.F.R. pt. 174. NABI sought to have its previous imports reclassified under the HTSUS subheading for "Motor vehicles [with a diesel engine] . . . [d]esigned for the transport of 16 or more persons, including the driver." HTSUS subheading 8702.10.30. In other words, NABI sought to have the imports that previously had been classified as mere bodies of buses reclassified under the subheading for completed motor vehicles. Under the latter classification, NABI's imports would have been eligible for duty-free treatment under the Generalized System of Preferences because the imports were from Hungary. See 19 U.S.C. §§ 2461-2467.

NABI's protest relied primarily on General Rule of Interpretation 2(a) of the HTSUS. Rule 2(a) provides that "[a]ny reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article."

Based on that rule, NABI argued that its bus shells should be reclassified because they had the "essential character" of finished motor vehicles. NABI supported that argument by listing twenty components that it asserted were "permanently installed" on the bus shells at the time of importation. NABI's protest did concede that, when compared with the imports in a prior Customs ruling on trolley bus shells, NABI's imported components were somewhat fewer and had a somewhat lesser value. NABI's protest further expressly listed twelve components that NABI acknowledged were installed only after importation. But NABI argued that those differences and missing parts did not alter the "essential character" of NABI's imports.

In November 1998, Customs issued a decision granting NABI's protest and holding that NABI's imports should have been classified under subheading 8702.10.30 as "motor vehicles" eligible for duty-free treatment. The decision cited the components listed in NABI's protest and noted that the remaining components were installed after importation. Customs then stated its finding that "[t]he bus shells when imported contain a substantial amount of equipment and number of components necessary for a completed transit bus." Customs concluded that NABI's imports, even in their "unfinished state," had the "essential character" of motor vehicles.

Based on the successful protest decision, NABI received refunds of duties that it had paid on bus shells imported between April and August 1997; statutory deadlines prevented NABI from seeking refunds for earlier imports. Apparently based in part on the advice of Damon Pike of Deloitte, NABI also began classifying its subsequent imports under the duty-free subheading for motor vehicles.

B.

Thornton G. Sanders, the qui tam relator in this action, is a former executive of NABI. NABI hired Sanders as Vice President and Chief Financial Officer in 1993. In 1994, Sanders became President and Director of NABI.¹

During his employment at NABI, Sanders raised questions within the company about certain contracts between NABI and NABI Hungary. NABI and its parent company entered into two separate contracts for each set of bus shells that NABI imported in the years from 1993 to 1997. Under the first contract, NABI paid NABI Hungary for the bus shells and their components. Under the second contract, NABI paid NABI Hungary for engineering and technology services. NABI characterized those services as consisting of both tangible designs and intangible technical information that assisted NABI in assembling the imported shells and parts. Because NABI did not consider the engineering and technology services to be part of the value of the imported bus shells, NABI did not include the cost of those services when declaring the value of the shells to Customs, or when calculating the eligibility of its buses for Buy America subsidies.

In 1996, Sanders sent memoranda to others at NABI recommending that NABI discontinue its separate payments for engineering and technology services. Sanders asserted that the company's payments did not accurately reflect the technical assistance that NABI was receiving from NABI Hungary. Apparently acting on Sanders's recommendation, NABI discontinued its separate contracts for engineering and technology services in 1997.

NABI also terminated Sanders's employment in 1997, shortly after Sanders proposed that the company be sold to a group of investors that included himself and NABI's other senior managers. Sanders subsequently wrote a letter to another NABI employee stating that he had been fired because executives at NABI Hungary viewed Sanders's proposed purchase of the company as an act of disloyalty.

C.

Sanders subsequently filed suit against NABI in 2002 under the qui tam provisions of the False Claims Act ("FCA"). 31 U.S.C. §§ 3729-3733. Section 3729 of the FCA creates liability in the form of treble damages and civil penalties of up to $10,000 for persons who make false or fraudulent claims for payment to the United States. Id. § 3729(a). And Section 3730 provides that civil actions under the FCA may be brought either by the Attorney General, id. § 3730(a), or by private persons, known as relators, who sue on the federal government's behalf, id. § 3730(b). A relator may recover up to thirty percent of the proceeds of a successful action, plus attorney's fees and costs. Id. § 3730(d). The relator must file his complaint under seal and notify the government of his action, and the government may then elect either to intervene in the suit or to allow the relator to continue the suit alone. Id. § 3730(b). The United States has consistently declined to intervene in Sanders's action.

Sanders...