U.S. ex rel. Rafizadeh v. Continental Common, Inc.

• Decision Date: 19 December 2008
• Docket Number: No. 06-30702.,06-30702.
• Citation: 553 F.3d 869
• Parties: UNITED STATES of America ex rel. Schumann RAFIZADEH, Plaintiff-Appellant-Cross-Appellee, v. CONTINENTAL COMMON, INC.; Basic Property Management; Regis Property Management; Transcontinental Realty, Inc., Defendants-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

553 F.3d 869

UNITED STATES of America ex rel. Schumann RAFIZADEH, Plaintiff-Appellant-Cross-Appellee, v. CONTINENTAL COMMON, INC.; Basic Property Management; Regis Property Management; Transcontinental Realty, Inc., Defendants-Appellees-Cross-Appellants.

No. 06-30702.

United States Court of Appeals, Fifth Circuit.

December 19, 2008.

Toby C. Easley, Matthews & Easley, Houston, TX, Cecilia Herrero Ducloux (argued), Bohn & Ducloux, Houston, TX, for Rafizadeh.

Mitchell Madden (argued), Thomas Viggers Murto, III, MaddenSewell, Dallas, TX, James M. Garner, Joshua Simon Force, Sher Garner Cahill, Richter Kelin & Hilbert, New Orleans, LA, for Defendants-Appellees-Cross-Appellants.

Steve I. Frank (argued), Douglas N. Letter, U.S. Dept. of Justice, Civ. Div., Washington, DC, for Amicus Curiae.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before JONES, Chief Judge, and REAVLEY and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Schumann Rafizadeh sued under the False Claims Act ("FCA"), 31 U.S.C. § 3729(a), alleging that the defendant property owners and managers (collectively "Continental") overcharged two Louisiana departments on lease agreements.¹ Both sides appeal, and we affirm.

I.

The Louisiana Departments of Social Services ("DSS") and Health and Hospitals ("DHH") (collectively the "Departments") maintain office leases with Continental. Louisiana and the United States jointly fund the Departments, with the federal government providing at least 64% of the funding. To secure funding, the Departments submit annual budgets to the United States.

Rafizadeh alleges that Continental overcharged the Departments under the lease agreements by overestimating the usable space in the office buildings the agencies occupy. Continental was aware that the United States largely funded the Departments. In his complaint, Rafizadeh insists that Continental submitted false claims to the Departments, "causing [them] to present same to the United States Government for payment thereof."

Continental moved to dismiss under Federal Rule of Civil Procedure 9(b) for failure to plead fraud with particularity and under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim on account of inadequate pleading of presentment. The district court dismissed with prejudice under Rule 12(b)(6), and Rafizadeh appeals.²

Continental then moved for attorneys' fees, contending that the suit was frivolous and vexatious. The district court denied the motion, and Continental cross-appeals.

II.

We review a dismissal under Rule 12(b)(6) or Rule 9(b) de novo. See United States ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 328 (5th Cir.2003). On review of dismissal, "the allegations in the complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken as true."³ To survive dismissal under Rule 12(b)(6), "the non-moving party must plead `enough facts to state a claim to relief that is plausible on its face.'"⁴ For complaints pleading fraud and malice, Rule 9(b) creates a heightened pleading requirement that "the circumstances constituting fraud or mistake shall be stated with particularity." FED.R.CIV.P. 9(b).⁵ Rule 9(b)'s pleading standards govern a FCA complaint. See Doe, 343 F.3d at 328.

The district court dismissed for failure to plead "presentment of the inflated invoices to the United States." Rafizadeh alleges the court erred in concluding that the complaint did not adequately plead presentment under 31 U.S.C. § 3729(a)(1) and that 31 U.S.C. § 3729(a)(2) requires a showing of presentment.

III.

A.

A party is liable if it "knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1). To plead a false claim successfully under this section, a plaintiff must state the factual basis for the fraudulent claim with particularity and cannot rely on speculation or conclusional allegations. See United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997). Because the linchpin of an FCA claim is a false claim, "the `time, place and contents of the false representations, as well as the identity of the person making the misrepresentation and what that person obtained thereby' must be stated in a complaint alleging violation of the FCA in order to satisfy Rule 9(b)."⁶

Rafizadeh's complaint alleges that "[d]efendants knowingly submitted false and inflated claims for rental invoices to [the Departments]," which caused them to present the same to the United States "for payment thereof, in accordance with the federal government's commitments to fund the Agencies' budgets." This pleading is lacking in the particularity demanded by Rule 9(b). Rafizadeh does not describe what statements were contained in the budget, who prepared it, or what role it played in securing funding from the federal government. See, e.g., Doe, 343 F.3d at 329. The complaint does not satisfy Rule 9(b).⁷

B.

A party can also violate the FCA if it "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." 31 U.S.C. § 3729(a)(2). Rafizadeh argues that § 3729(a)(2), unlike § 3729(a)(1), does not require presentment. The district court disagreed, citing United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C.Cir.2004).

After the district court entered judgment, the circuit split regarding presentment under § 3729(a)(2) was resolved in Allison Engine Co. v. United States ex rel. Sanders, ___ U.S. ___, 128 S.Ct. 2123, 170 L.Ed.2d 1030 (2008). Even though "§ 3729(a)(1) requires a plaintiff to prove that the defendant `present[ed]' a false or fraudulent claim to the Government, the concept of presentment is not mentioned in § 3729(a)(2)." Id. at 2129. The Court agreed with Rafizadeh's general contention that presentment is not required under § 3729(a)(2). Id. at 2129-30.

The Court did, however, clarify what a plaintiff is required to prove under § 3729(a)(2). He must show "that the defendant made a false record or statement for the purpose of getting `a false or fraudulent claim paid or approved by the Government.'" Id. at 2130. If the defendant "makes a false statement to a private entity and does not intend the Government to rely on that false statement as a condition of payment, the statement is not made with the purpose of inducing payment of a false claim `by the Government.'" Id. "[A] plaintiff asserting a § 3729(a)(2) claim must prove that the defendant intended that the false record or statement be material to the Government's decision to pay or approve the false claim." Id. at 2126.

"Of course, Supreme Court decisions apply retroactively and prospectively to all cases on direct appeal whenever applied to the litigants before the Court." Deffenbaugh-Williams v. Wal-Mart Stores, Inc., 188 F.3d 278, 282 (5th Cir. 1999) (citing Harper v. Va. Dep't of Taxation, 509 U.S. 86, 97, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993)). Generally, we would remand to provide Rafizadeh with a chance to plead the facts relevant to Allison Engine's § 3729(a)(2) standard.⁸ Remanding here would be fruitless, however, because Rafizadeh's claim falters under Rule 9(b) regardless of whether it meets the newly-announced § 3729(a)(2) requirements. Despite the fact that § 3729(a)(2) does not require presentment, a relator alleging a § 3729(a)(2) violation must still show the "who, what, when, where, and how of the alleged fraud" under Rule 9(b).⁹ Rafizadeh has failed to meet several of the Rule 9(b) requirements: "what" statements were in the budget, "who" prepared it, and "how" it was used to get government funds. Thus, the claim fails under Rule 9(b) regardless of whether Rafizadeh satisfies Allison Engine.

IV.

Continental cross-appeals the denial of its motion for attorneys' fees under 31 U.S.C. § 3730(d)(4)¹⁰ and 28 U.S.C. § 1927.¹¹ Under both of these sections, we review for abuse of discretion.¹² Generally, "the trial judge is in the best position to review the factual circumstances and render an informed judgment as he is intimately involved with the case, the litigants, and the attorneys on a daily basis," so our review of fee decisions is especially deferential.¹³

Continental argues that Rafizadeh's vague factual allegations, which it claims seek to skirt the presentment requirement, show the complaint to be frivolous. An action is not frivolous if existing law or a reasonable suggestion for its extension, modification, or reversal supports the action. Cf. Farguson v. MBank Houston, N.A., 808 F.2d 358, 359 (5th Cir.1986).

Although Rafidezeh's allegations are not pleaded with sufficient particularity under Rule 9(b), he tendered a good-faith argument that presentment is not required for § 3729(a)(2) actions. The district court did not abuse its discretion in finding that the qui tam claim was not frivolous.

"An action is `clearly vexatious' or `brought primarily for purposes of harassment' when the plaintiff pursues the litigation with an improper purpose, such as to annoy or embarrass the defendant." Pfingston v. Ronan Eng'g Co., 284 F.3d 999, 1006 (9th Cir.2002) (citations omitted). But, "the award of fees under the false claims act is reserved for rare and special circumstances." Id. at 1006-07. Continental contends that Rafizadeh's suit is vexatious, because it is the fourth suit between the parties, and the original complaint raised issues that had been litigated elsewhere.

Despite the fact that the first amended complaint raised issues regarding Louisiana public bid law, the second amended complaint raised only the non-frivolous qui tam action, which had not been an issue in the earlier state suits. The district court is better suited than are we to determine whether these additional allegations so inflated the costs of...