United States v. Ford Motor Company

• Decision Date: 09 July 2008
• Docket Number: No. 07-1474.,07-1474.
• Citation: 532 F.3d 496
• Parties: UNITED STATES of America, ex rel. Snapp, Inc., Plaintiff-Appellant, v. FORD MOTOR COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

532 F.3d 496

UNITED STATES of America, ex rel. Snapp, Inc., Plaintiff-Appellant, v. FORD MOTOR COMPANY, Defendant-Appellee.

No. 07-1474.

United States Court of Appeals, Sixth Circuit.

Argued: April 24, 2008.

Decided and Filed: July 9, 2008.

ARGUED: Jeffrey Dale Stamper, Louisville, Kentucky, for Appellant. Francis R. Ortiz, Dickinson Wright PLLC, Detroit, Michigan, for Appellee. ON BRIEF: E. Powell Miller, David Fink, The Miller Law Firm, Rochester, Michigan, for Appellant. Francis R. Ortiz, Kenneth J. McIntyre, Dickinson Wright PLLC, Detroit, Michigan, for Appellee.

Before: SUHRHEINRICH, CLAY, and COOK, Circuit Judges.

CLAY, J., delivered the opinion of the court. SUHRHEINRICH, J. (pp. 510-11), delivered a separate concurring opinion. COOK, J. (p. 511), delivered a separate opinion concurring in part and dissenting in part.

OPINION

CLAY, Circuit Judge.

Relator SNAPP, Inc. brings this qui tam action under the False Claims Act, 31 U.S.C. § 3729 et seq., claiming that Defendant Ford Motor Company ("Ford") fraudulently induced the federal government to contract with Ford by inflating, in official reports to the government, the extent of Ford's dealings with small and minority-owned businesses. The district court dismissed Relator's complaint for failure to comply with Fed.R.Civ.P. 9(b)'s requirement that a party alleging fraud "state with particularity the circumstances constituting fraud...." Because Relator failed to plead with such particularity the nature of Ford's claim for payment from the federal government, we AFFIRM the district court's decision dismissing Relator's First Amended Complaint. However, because the district court did not have the benefit of our decision in United States ex rel Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 502 (6th Cir.2007) ("Bledsoe II") before denying Relator's motion to file an amended complaint, we VACATE the district court's order denying the motion to file an amended complaint and REMAND the matter for consideration in light of Bledsoe II.

STATEMENT OF FACTS

A. Factual Allegations

Because Relator is appealing a district court order dismissing its complaint under Rule 12(b)(6), this Court must accept as true all of the factual allegations contained the complaint.¹ Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356, 360 (6th Cir. 2001). According to Relator, Ford is a "prime contractor" to the United States,² and is accordingly required to comply with certain federal laws governing the use of small and minority-owned businesses as subcontractors. Among these requirements, a prime contractor may not contract with the federal government unless they establish a plan to "provide[] the maximum practicable opportunity" for small businesses and minority-owned businesses to subcontract with the prime contractor.³ 15 U.S.C. § 637(d)(4)(D). Failure to develop such a plan can render a prime contractor ineligible to receive federal contracts. See id.

Relator alleges that, from 1991 until 1999, Ford fraudulently exaggerated the extent of its dealings with small and minority-owned businesses, and that these exaggerations induced the federal government to contract with Ford, even though Ford never implemented a plan to "provide[] the maximum practicable opportunity" to such businesses. According to Relator, during this eight-year period Relator was controlled entirely by Ford. Ford nominated the majority of Relator's board members, its organization charts included Relator and its employees, and Ford had full control over its dealings with Relator. Though Relator was nominally owned and managed by a person of color, Relator maintains that this nominal control was a sham, and that Relator actually operated as a subdivision of the Ford Motor Company. Moreover, Relator claims, even if it did qualify as a minority-owned business during its dealings with Ford, from 1995 until 1999, Relator had too many employees to qualify as a small business.

Despite Relator's claims that it functioned entirely as a subdivision of Ford, Ford filed official reports with the government stating that, between 1991 and 1998, Ford made significant improvements in the amount of business it subcontracted to small and minority-owned businesses. As a prime government contractor, Ford was required to file yearly reports documenting what percentage of the subcontracts related to its government contracts were made with small or minority-owned businesses. According to these reports, Ford increased its subcontracting with small businesses from 19.2% in 1991 to 22.9% in 1998, reaching a peak of 24% in 1993. Over the same period, Ford also increased its subcontracting with small minority-owned businesses from 2.6% of the total amount of its government-related subcontracts to 4.8%. In its 1999 report, Ford stated that 23.3% of its government-related subcontracts were made with small businesses. Although this report also shows a sharp decline in the amount of subcontracts made with small minority-owned businesses, the report also indicates that Ford intended to purchase $3.3 billion worth of supplies from minority-owned businesses, a statement which, if true, would have reflected to an increase in Ford's dealings with such businesses between 1998 and 1999.

The crux of Relator's complaint is that, despite Ford's reports claiming that it had enacted and was successfully implementing a plan to "provide[] the maximum practicable opportunity" to small and minority-owned businesses, Ford had inflated the extent of its dealings with such businesses by fraudulently declaring money paid to Relator as a subcontract with a small and minority-owned business. According to Relator, "the Relator was being used by Ford as a conduit for the satisfaction of Ford's, not the Relator's, obligations to Ford's majority suppliers of goods and services to Ford." (J.A. 245) Ford, Relator claims, would subcontract with a large, majority-owned business; Ford would then launder its payments to that large, majority-owned business through Relator. Under this scheme, Relator would receive those payments only for the purpose of passing them through to the large, majority-owned subcontractor, but Ford would still report these transactions to the government as a subcontract with a small, minority-owned business.

Relator further alleges that Ford knowingly or recklessly submitted reports that exaggerated its dealings with small and minority-owned businesses, and that these exaggerations were substantial. In 1998, for example, Ford reported that it paid $2.46 billion to small, minority-owned subcontractors. According to Relator, however, $461 million of this $2.46 billion were sham payments laundered through Relator. Similarly, in 1999 Ford predicted in its reports to the government that it would pay $3.3 billion to small, minority-owned subcontractors, but Relator claims that $556 million of this $3.3 billion were sham payments.

In light of these alleged sham payments, Relator claims that had the federal government been aware that Ford was exaggerating its dealings with small and minority-owned businesses, it would not have permitted Ford to act as a prime contractor. Accordingly, Relator argues, none of the federal government contracts Ford received during the period that it was allegedly inflating its dealings with small and minority-owned businesses would have been awarded to Ford. Because these contracts were allegedly awarded to Ford as a direct result of Ford's fraudulent statements, Relator further claims that none of the payments made to Ford under these contracts would have been made had Ford not deceived the government.

B. Procedural History

On April 30, 2003, Relator filed its original complaint, under seal, in the Southern District of Ohio. That complaint was unsealed on July 19, 2004, when the United States declined to intervene.⁴ Nevertheless, process was not served on Ford until February 10, 2006, and only after the Southern District of Ohio issued two orders inquiring into the reason for this delay. Despite the delay, Ford stipulated to its acceptance of this service, and does not allege on appeal that this case should be dismissed on account of the delay. On April 14, 2006, the parties also stipulated to a transfer of this case to the Eastern District of Michigan.⁵

On September 7, 2006, the district court issued an order dismissing a portion of Relator's claim and ordering Relator to file an amended complaint. In issuing this order, the district court reached two holdings which are relevant to this appeal. First, the district court concluded that the statute of limitations for a qui tam action is six years, and accordingly held that any of Relator's claims pre-dating April 30, 1997—six years prior to the filing of this claim—must be dismissed as untimely. Additionally, the district court held that Relator's original complaint did not comply with the particularity requirements of Fed. R.Civ.P. 9(b), finding that this complaint "contains no allegations as to which claims submitted by Ford would not have been paid" but for Ford's alleged fraudulent statements. (J.A. 208) Accordingly, the court ordered Relator to amend its complaint in order to bring it into compliance with Rule 9(b).

Relator filed its First Amended Complaint on October 4, 2006, and shortly thereafter, it filed copies of the annual reports Ford had submitted to the government in order to retain its eligibility as a prime contractor. In a February 1, 2007 order, the district court dismissed this amended complaint, holding that it still had not "identified any contract that Ford was allegedly wrongfully awarded as a result of being a Prime Contractor." (J.A. 356) On February 9, 2007, Relator filed a motion, which the district court construed as a motion to vacate its dismissal of this case under Rule 59(e) and to permit Relator to subsequently file a Second Amended Complaint. Accompanying this motion were additional copies of Ford's 1991-99 reports to the...