United States ex rel. Raynor v. Nat'l Rural Utilities Coop. Fin., Corp.

• Decision Date: 23 August 2012
• Docket Number: No. 11–2642.,11–2642.
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: UNITED STATES of America, ex rel. John P. RAYNOR, Plaintiff–Appellant v. NATIONAL RURAL UTILITIES COOPERATIVE FINANCE, CORPORATION; National Rural Electric Cooperative Association; Randall B. Johnston; Deloitte Touche USA, LLP; Sheldon C. Petersen; John J. List; Steven L. Lilly; Glenn L. English; Ernst & Young, LLP; Moody's Corp.; Moody's Investors Service, Inc.; The McGraw Hill Companies, Inc.; Fitch, Inc.; Fitch Ratings, LTD., Defendants–Appellees.

690 F.3d 951

UNITED STATES of America, ex rel. John P. RAYNOR, Plaintiff–Appellant

v.NATIONAL RURAL UTILITIES COOPERATIVE FINANCE, CORPORATION; National Rural Electric Cooperative Association; Randall B. Johnston; Deloitte Touche USA, LLP; Sheldon C. Petersen; John J. List; Steven L. Lilly; Glenn L. English; Ernst & Young, LLP; Moody's Corp.; Moody's Investors Service, Inc.; The McGraw Hill Companies, Inc.; Fitch, Inc.; Fitch Ratings, LTD., Defendants–Appellees.

No. 11–2642.

United States Court of Appeals,

Eighth Circuit.

Submitted: May 16, 2012.

Filed: Aug. 23, 2012.

Alexander Angueira, argued, Coral Gables, FL, Richard Joseph Rensch, Sean P. Rensch, on the brief, Omaha, NE, for appellant.

Michael C. Theis, argued, Denver, CO, William Maxwell Lamson, Jr., Omaha, NE, Michael K. Huffer, Omaha, NE, Terry J. Grennan, Omaha, NE, James Patrick Fitzgerald, Omaha, NE, Michael Leo Schleich, Omaha, NE, Thomas J. Culhane, Omaha, NE, Thomas James Kenny, Omaha, NE, Matthew M. Enenbach, Omaha, NE, Andrew D. Strotman, Lincoln, NE, Shawn D. Renner, Lincoln, NE, Lawrence Robbins, Washington, DC, Gary A. Orseck, Washington, DC, Jessica Lynn Ellsworth, Washington, DC, Jonathan Lee Diesenhaus, Washington, DC, Sarah Ribstein, Washington, DC, Lisa K. Helvin, Washington, DC, Andrew Christopher Lillie, Denver, CO, Jessica Black, Denver, CO, Michael Anthony Lindsay, Minneapolis, MN, James K. Nichols, Minneapolis, MN, Neil John Oxford, New York, NY, Floyd Abrams, New York, NY, James Coster, New York, NY, James J. Regan, New York, NY, Joshua M. Rubins, New York, NY, Tammy L. Roy, New York, NY, Andrew Ehrlich, New York, NY, Dominika N. Tarczynska, New York, NY, Martin Flumenbaum, New York, NY, Roberta A. Kaplan, New York, NY, Amina Hassan, New York, NY, on the brief, for appellees.

Before MURPHY, BENTON, and SHEPHERD, Circuit Judges.

BENTON, Circuit Judge.

John P. Raynor sued the National Rural Utilities Cooperative Finance Corporation and a number of its officers and alleged co-conspirators in a qui tam action for violations of the False Claims Act, 31 U.S.C. §§ 3729–33. On National Rural's motion, the district court ¹ dismissed the complaint with prejudice as to Raynor.² He appeals. Jurisdiction being proper under 28 U.S.C. § 1291, this court affirms.

I.

National Rural is a non-profit, member-owned cooperative that provides financing and financing assistance to its members, rural electric cooperatives. A National Rural controlled cooperative—Rural Telephone Finance Corporation—provides financing to rural telephone companies. National Rural receives federal funding from the Federal Agricultural Mortgage Corporation (Farmer Mac) and the Federal Financing Bank through the Rural Economic Development Loan and Grant Program administered by the United States Department of Agriculture.

Raynor alleges that National Rural is violating the False Claims Act by receiving Farmer Mac investment funds in violation of federal law. He alleges that before 2008, Farmer Mac made “non-program investments” in National Rural that exceeded its investment cap for a single entity and violated a marketability requirement. Raynor also alleges that after 2008, Farmer Mac issued loans and revolving lines of credit to National Rural that exceeded its authority and violated its charter.

Raynor also alleges that National Rural is violating the Act by perpetrating three frauds, “the Embezzlement Scheme,” “the CoServ Loan Fraud,” and “the ICC Loan Fraud.” He alleges that National Rural should not have received approval for Farmer Mac investments, loans through the Rural Economic Development Loan and Grant Program, or guarantees on those loans from USDA because the financial statements that National Rural submitted to obtain them were false and misleading. Raynor complains that National Rural did not apply Generally Accepted Accounting Principles (GAAP) in accounting for its losses on two loans—one to Denton County Electric Cooperative, Inc. (the CoServ loan) and one to Innovative Communication Corporation (the ICC loan)—and that CFC also failed to disclose an “Embezzlement Scheme.” He alleges that National Rural embezzled from Rural Telephone by attributing its profits to other electric utilities affiliated with National Rural. Raynor asserts that National Rural's access to federal investments, loans, and guarantees was fraudulent because it “would not have an investment grade rating but for accounting fraud.”

The district court dismissed Raynor's third amended complaint under Fed.R.Civ.P. 9(b) and under Fed.R.Civ.P. 12(b)(6).

II.

This court reviews de novo a district court's dismissal of an action pursuant to the heightened pleading standard applied to complaints of fraud under the Federal Rules of Civil Procedure. Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir.2011); Fed.R.Civ.P. 9(b). “To satisfy the particularity requirement of Rule 9(b), the complaint must plead such facts as the time, place, and content of the defendant's false representations, as well as the details of the defendant's fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result.” United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 556 (8th Cir.2006).

This court also reviews de novo the grant of a motion to dismiss for failure to state a claim. B & B Hardware, Inc. v. Hargis Industries, Inc., 569 F.3d 383, 387 (8th Cir.2009). In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in the complaint to be true and construes all reasonable inferences most favorably to the complainant. Id.;Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir.2008). Nonetheless, although a complaint need not contain “detailed factual allegations,” it must contain facts with enough specificity “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), citing Twombly, 550 U.S. at 570, 127 S.Ct. 1955. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id., citingTwombly, 550 U.S. at 555, 127 S.Ct. 1955.

The False Claims Act imposes liability on those who present false claims, or cause false claims to be presented, to the government for payment or approval; use false statements, or cause false statements to be used, to get a false claim paid or approved by the government; or conspire to defraud the government, among other things. 31 U.S.C. § 3729(a)(1)–(3).³ The Act's qui tam provisions permit private persons, relators, to sue for violations “in the name of the government” and recover a share of the proceeds if the suit is successful. 31 U.S.C. § 3730(b), (d). “A prima facie case under the [Act] requires that (1) the defendant made a claim against the United States; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent.” United States v. Basin Elec. Power Coop., 248 F.3d 781, 803 (8th Cir.2001).

A.

Raynor argues the district court should not have applied Rule 9(b)'s higher pleading standard to his allegations that National Rural is violating the Act by receiving investments, loans, and loan guarantees in violation of federal law.⁴ Raynor contends that because these allegations are based only on the falsity or legal invalidity of the investments—not on any alleged fraud—he should have to prove only that National Rural knowingly received monies in violation of federal law.

The relator in United States ex. rel. Clausen v. Laboratory Corp. of Am., Inc., 290 F.3d 1301, 1308–10 (11th Cir.2002), also argued that a complaint regarding false (as opposed to fraudulent) claims under the Act does not trigger Rule 9(b). The Eleventh Circuit disagreed, concluding that Rule 9(b) applies to false claims under the FCA because despite the disjunctive use of “false or fraudulent,” the Supreme Court has consistently recognized the Act as an anti-fraud statute. Id. at 1309,citingVermont Agency of Nat. Resources v. United States ex rel. Stevens, 529 U.S. 765, 781, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000).

This court has repeatedly applied Rule 9(b)'s heightened pleading standard to causes of action under the Act. See United States ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791, 796 (8th Cir.2011) (“Because the FCA is an anti-fraud statute, the Complaint's false-claim allegations must comply with Rule 9(b)—‘a party must state with particularity the circumstances constituting fraud.’ ”), quoting Joshi, 441 F.3d at 556;United States ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 822 (8th Cir.2009) ( “Grounded in fraud, FCA claims must satisfy Rule 9(b)'s heightened pleading requirement.... To meet this standard and enable the defendant to respond ‘specifically and quickly,’ a complaint alleging fraud ‘must identify who, what, where, when, and how.’ ”), quoting United States ex rel. Costner v. United States, 317 F.3d 883, 888 (8th Cir.2003). Rule 9(b) applies to Raynor's allegations that National Rural is violating the Act by receiving investments, loans, and loan guarantees in violation of federal law.

As the district court explained, Raynor's “conclusory” or “summar[y]” allegations lack the specifics necessary for a fraud claim. The district court wrote: “Though Raynor's allegations are numerous, none of them sufficiently set forth specifics regarding the fraudulent nature of any of the alleged acts of any Defendant.” The district court rightly pointed out that Raynor never alleged any wrongdoing or falsity on the part of National Rural in obtaining the investments, loans, or guarantees. Raynor fails to detail the “how” of National Rural's fraud. See Costner, 317 F.3d at 888;see also Ziemba v. Cascade...